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Mortgage Market in Review – March 16, 2015

Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Rates were stable the first portion of the week with no data. Greek economic turmoil dominated newswires as eurozone officials debated what to do next. Weaker than expected data Thursday morning helped rates fall. Retail sales fell 0.6% versus the expected 0.4% increase, which was very rate friendly. The producer price index fell 0.5% versus the expected 0.3% increase. The core, which excludes volatile food and energy prices, fell 0.5% versus the expected 0.1% increase. Consumer sentiment came in at 91.2 versus the expected 95.8 reading. The European Central Bank began their bond-buying program, which caused some unusual volatility across the global financial markets. Mortgage interest rates finished the week better by approximately 1/4 to 3/8 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Industrial Production Monday, March 16,
9:15 am, et
Up 0.2% Important.  A measure of manufacturing sector strength.  A lower than expected increase may lead to lower rates.
Capacity Utilization Monday, March 16,
9:15 am, et
77.2% Important.  A figure above 85% is viewed as inflationary.  Weaker figure may lead to lower rates.
NAHB Housing Index Monday, March 16,
10:00 am, et
Up 1.4% Moderately Important.  A measure of single family housing.  Weakness may lead to lower mortgage rates.
Housing Starts Tuesday, March 17,
8:30 am, et
610k Important.  A measure of housing sector strength.  Weakness may lead to lower rates.
Fed Meeting Adjourns Wednesday, March 18,
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, March 19,
8:30 am, et
303k Important.  An indication of employment.   Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, March 19,
10:00 am, et
6.8 Moderately important.  A survey of business conditions in the Northeast.  Weakness may lead to lower rates.
Leading Economic Indicators Thursday, March 19,
10:00 am, et
Up 0.2% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.

“Patient”

The most significant event in the financial markets this week will likely swing on one simple word or the lack thereof.  Fed Chair Yellen clearly indicated in February that the Fed will consider rate hikes on a “meeting-by-meeting basis” but not prior to removing the word “patient” from the forward guidance.

The door is open to a Fed rate hike in the next few months if the Fed removes the “patient” wording this week.  The MBS market has priced in a lot of uncertainty as mortgage interest rates have risen the past few months in preparation of a Fed policy change.  If the Fed fails to revise their guidance we could see a short-term relief rally.

The Fed has a difficult challenge ahead.  The housing market is not their only focus.  However, it is a vital component of our economy and a higher interest rate environment could dampen the housing recovery.  Be cautious heading into the Fed meeting this week as volatility is likely.

 

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