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Mortgage Market in Review – June 30, 2014

Market Comment
Mortgage bond prices finished the week positive putting downward pressure on mortgage rates.  Housing data released early in the week was positive.  Both new and existing home sales were better than expected.  Gross Domestic Product (GDP), a summation of economic output, showed the US economy contracted 2.9% in Q1, 2014.  That was the worst contraction since 2009 and was blamed on the hard winter.  The Treasury auctions of 2,5 and 7-year notes showed tepid demand from investors, a worrisome trend if it were to continue.  The US counts on investors to fund the government’s deficit spending.  Lastly, the two reports on the consumer, confidence and the University of Michigan sentiment report, were better than expected.  Geopolitical issues had little effect on trade last week.  For the week, mortgage interest rates fell by about 3/8 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
ISM Index Tuesday, July 1,
10:00 am, et
55.6 Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.
ADP Employment Wednesday, July 2,
8:30 am, et
183k Important.  An indication of employment.  Weakness may bring lower rates.
Factory Orders Wednesday, July 2,
10:00 am, et
Up 0.5% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, July 3,
8:30 am, et
315k Important.  An indication of employment.   Higher claims may result in lower rates.
Employment Thursday, July 3,
8:30 am, et
6.2%,
Payrolls +195k
Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.
Trade Data Thursday, July 3,
8:30 am, et
$38b deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower rates.
Independence Day Friday, July 4   Important.  Shortened and thin trading conditions may result in mortgage interest rate volatility.

Rate Improvements

While the future of the U.S. economy remains in question, there is no doubt that mortgage interest rates are historically very low.

As the economy improves rates will rise.  Housing and consumer confidence data released last week were better than expected; however, GDP and income data was weak.  Weekly jobless claims are persistently above 300K, a sign the labor market is still under pressure.

Remember, the Federal Reserve has been one of the largest purchasers of mortgage-backed securities in an effort to keep rates low and stabilize the housing market.  The Fed announced asset purchase reductions at the last several meetings.  Markets do not question if the Fed will continue this reduction.  However, there is great uncertainty as to the future of the U.S. economy.

Now is a great time to take advantage of mortgage interest rates at these exceptionally favorable levels to avoid future market volatility.

 

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