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Mortgage Market in Review – May 18, 2015

Market Comment

Mortgage bond prices finished the week lower which pushed mortgage interest rates higher. Most of the weakness came early in the week. There was concern that the bull market in the bond market had ended and rates shot higher by almost a full discount point. The 3 and 10 year Treasury auctions were solid with strong foreign demand. Weaker than expected economic data near the end of the week helped recover a significant portion of the earlier losses. Weekly jobless claims were 264K versus the expected 275K. Producer prices fell 0.4% versus the expected 0.2% increase. The core, which excludes volatile food and energy, fell 0.2% versus the expected 0.1% increase. Industrial production fell 0.3% versus the expected 0.1% increase. Capacity use was 78.2%, expected 78.4%. Consumer sentiment came in at 88.6 versus the expected 96.0 mark. Mortgage interest rates finished the week worse by approximately 1/4 of a discount point.

LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
NAHB Housing Index Monday, May 18,
10:00 am, et
56.5 Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates.
Housing Starts Tuesday, May 19,
8:30 am, et
965K Important. A measure of housing sector strength. Weakness may lead to lower rates.
Fed Minutes Wednesday, May 20,
2:00 pm, et
None Important. Details of the last Fed meeting will be thoroughly analyzed.
Weekly Jobless Claims Thursday, May 21,
8:30 am, et
272K Important. An indication of employment. Higher claims may result in lower rates.
Existing Home Sales Thursday, May 21,
10:00 am, et
5.21M Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Philadelphia Fed Survey Thursday, May 21,
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, May 21,
10:00 am, et
Up 0.2% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
Consumer Price Index Friday, May 22,
8:30 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.

China

China is an important driver in the global recovery following the financial crisis that started in 2008. Their economy continues to expand whiles other countries falter. China is a major purchaser of commodities, especially copper and iron ore that are used in industrial production. That buying helps many developing countries weather the financial crisis. In addition to commodities, China buys US Treasury debt and currently holds in excess of $1.2T.

China’s GDP growth in 2010 was 10.4%. That number fell in 2011 to 9.3%. Growth rates in 2012 and 2013 were 7.7%. China’s central bank cut interest rates for the third time in six months in May to address the economic slowdown. The weakness is broad-based including manufacturing, housing and investment. The Chinese economic growth rate is still sharply higher than most other large economies. However, the fear that growth will continue to slow has caused concern. China is a major trading partner with many economies. A dramatic slowdown in growth, or worse, a housing or credit bust would be felt around the world.


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