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Mortgage Market in Review – January 26, 2015

 

Market Comment

Mortgage bond prices finished the week unchanged to slightly lower which pushed rates a bit higher. Rates were negative the first portion of the week in response to stronger than expected housing data. Housing starts were 1089K versus the expected 1060K. The weakness continued until Thursday. Weekly jobless claims were 307K versus the expected 300K and rates recovered some of the earlier losses. The European Central bank announced quantitative easing and trading was choppy as a result with 1/4 point swings up and down throughout Thursday. We ended neutral to slightly positive and the positive movements continued Friday. Leading economic indicators rose 0.5% as expected. Existing home sales were 5.04M versus the expected 5.08M. Mortgage interest rates finished the week unchanged to worse by approximately 1/8 of a discount point despite all the volatility.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Durable Goods Orders Tuesday, Jan. 27,
8:30 am, et
Down 0.2% Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
Consumer Confidence Tuesday, Jan. 27,
10:00 am, et
92.8 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.
New Home Sales Tuesday, Jan. 27,
10:00 am, et
442k Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
Treasury Auctions Begin Tuesday, Jan. 27,
1:15 pm, et
None Important. 2Y Notes on Tuesday, 5Y Notes on Wednesday, and 7Y Notes on Thursday.
Fed Meeting Adjourns Wednesday, Jan. 28,
2:15 pm, et
No rate changes Important. Few expect the Fed to change rates, but some volatility may surround the adjournment of this meeting.
Weekly Jobless Claims Thursday, Jan. 29,
8:30 am, et
311k Important. An indication of employment. Higher claims may result in lower rates.
Q4 Advance GDP Friday, Jan. 30,
8:30 am, et
Up 4.4% Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
Q4 Employment Cost Index Friday, Jan. 30,
8:30 am, et
Up 0.6% Very important. A measure of wage inflation. Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Jan. 30,
10:00 am, et
97.8 Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

ECB QE

The European Central Bank jumped into the “Quantitative Easing” game last week with its own bond buying program. The ECB announced efforts to purchase 60b euros of government bonds monthly over the next 19 months. ECB President Draghi indicated the program may continue beyond that if needed.

Some analysts predict limited benefits from the recent ECB move despite success in the United States. The move has been anticipated for some time and a lot of the eurozone countries saw a drop in rates in 2014 with the exception of Greece which is rumored to possibly exit the eurozone this year.

The good news for U.S. borrowers is the signal that the global economic recovery is still wobbly. The U.S. remains the world “safe haven” in times of uncertainty and the demand for mortgage bonds remains solid. Now is a great time to take advantage of the historically favorable rates.

 

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