Mortgage Market in Review – January 13, 2014

January 13, 2014

Market Comment

Mortgage bond prices finished the week sharply higher which helped mortgage interest rates fall. Rates improved Monday and stayed positive throughout the beginning of the week. That trend reversed Thursday morning in response to the better than expected weekly jobless claims. Weekly claims came in at 330k versus the expected 335k and rates spiked higher. The disappointing payrolls component of the employment report resulted in a sharp decrease in rates Friday morning (see details below.) Mortgage interest rates finished the week better by approximately 3/4 of a discount point.

LOOKING AHEAD

Economic
Indicator

Release
Date & Time

Consensus
Estimate


Analysis

Retail Sales

Tuesday, Jan. 14,
8:30 am, et

Up 0.8%

Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.

Producer Price Index

Wednesday, Jan. 15,
8:30 am, et

Up 0.1,
Core up 0.1%

Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.

Fed “Beige Book”

Wednesday, Jan. 15,
2:00 pm, et

None

Important. This Fed report details current economic conditions across the US. Signs of weakness may lead to lower rates.

Weekly Jobless Claims

Thursday, Jan. 16,
8:30 am, et

328k

Important. An indication of employment. Higher claims may result in lower rates.

Consumer Price Index

Thursday, Jan. 16,
10:00 am, et

Up 0.2%,
Core up 0.1%

Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.

Philadelphia Fed Survey

Thursday, Jan. 16,
10:00 am, et

6.5

Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Housing Starts

Friday, Jan. 17,
8:30 am, et

987k

Important. A measure of housing sector strength. Weakness may lead to lower rates.

Industrial Production

Friday, Jan. 17,
9:15 am, et

Up 0.8%

Important. A measure of manufacturing sector strength. Weakness may lead to lower rates.

Capacity Utilization

Friday, Jan. 17,
9:15 am, et

78.2%

Important. A figure above 85% is viewed as inflationary. Weakness may lead to lower rates.

U of Michigan Consumer Sentiment

Friday, Jan. 17,
10:00 am, et

82.1

Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Weaker Payrolls and Lower Rates

The December employment report came in mixed with a strong headline rate and a weak jobs component. Unemployment came in at 6.7%, considerably better than the expected 7.1% rate. The payrolls component showed jobs increased 74,000 compared to the 187,000 increase expected by analysts. The figure was a negative sign for the recovering economy and reduced the fear of additional Fed tapering in the short term. The fortunate consequence was a sharp decrease in mortgage interest rates Friday morning which carried into the afternoon as investors poured funds into mortgage bonds.

The Bureau of Labor Statistics (BLS) of the U.S. Department of Labor compiles data from two different surveys that they conduct, the household survey and the establishment survey, in order to complete the employment report. This explains why there are often unexpected divergences between the unemployment rate and payrolls figure. The data for December showed this disparity very clearly. Fortunately traders focused on the payrolls, mortgage bonds rallied, and mortgage interest rates fell sharply. Now is a great time to take advantage of the drop in rates.

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