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Mortgage Market in Review – February 20, 2017


Market Comment

Mortgage bond prices finished the week near unchanged which kept rates flat. Rates were sharply higher the first portion of the week as stocks surged higher, inflation readings exceeded expectations, and Fed officials warned of rate hikes. Producer prices rose 0.6% versus the expected 0.3% increase. The core, which excludes volatile food and energy, rose 0.4% versus the expected 0.2% increase. Consumer prices rose 0.6% versus the expected 0.3% increase. The core rose 0.3% while analysts looked for a reading of 0.2%. Housing starts were higher than expected and the Philadelphia Fed business conditions index hit a 30 plus year high. Weakness out of the Eurozone reversed most of the earlier rate spikes with some flight to safety buying of mortgage backed securities. Mortgage interest rates finished the week near unchanged.


Date & Time

Treasury Auctions Begin Tuesday, Feb. 21,
1:15 pm, et
None Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday.
Existing Home Sales Wednesday, Feb. 22,
10:00 am, et
5.5M Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Fed Minutes Wednesday, Feb. 22,
2:00 pm, et
None Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, Feb. 23,
8:30 am, et
235K Important. An indication of employment. Higher claims may result in lower rates.
FHFA House Price Index Thursday, Feb. 23,
10:00 am, et
Up 0.5% Moderately Important. A measure of single family house prices. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Feb. 24,
10:00 am, et
96.5 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
New Home Sales Friday, Feb. 24,
10:00 am, et
555K Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

Fed Priming

Mortgage interest rates shot higher recently amid inflation and Fed rate hike concerns. The Fed continued to prime the financial markets and consumers for rate hikes sometime this year. The recent consensus calls for three rate hikes in 2017 but the timing is still uncertain. While some analysts point to a less than 20% chance of a Fed rate hike at the March meeting, Fed Chair Yellen did not take one off the table in her testimony to Congress last week. Yellen indicated the Fed would be data dependent and cautioned about the risks in delaying tightening. Richmond Fed President Lacker said that we need rate hikes quicker than most expect and warned of the uncertainties of the new administration.

If the Fed delays too much they might have to hike rates rapidly in the future which could tip the economy into recession. The majority of the recent data supports rate hikes sooner rather than later. The other big concern for mortgage interest rates is the Fed’s reinvestment of mortgage holdings. Some Fed officials continue to call for an unwinding of their positions which could drive mortgage interest rates sharply higher. The Fed did a great job keeping rates low for some time now. The next step and timing of it is the biggest challenge. With so much uncertainty ahead now is a great time to take advantage of still historically favorable rates.
Copyright 2016. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.