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Mortgage Market in Review – November 16, 2016

Market Comment

Mortgage bond prices finished the week sharply lower which caused rates to surge higher. There was very little data this week. The Treasury auctions were all weak. Rates shot higher after the election results and stocks rallied. Uncertainty entered the once safe haven of mortgage bonds. Investors took profits after the very long run-up in prices and shifted funds elsewhere. Weekly jobless claims were 254K versus the expected 260K. This added fuel to the fire and continued the selling pressure Thursday morning ahead of the Friday holiday. Mortgage interest rates finished the week higher by almost 2 full discount points. This was the largest spike in rates in a very long time and signaled a possible higher interest rate environment into the future.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Retail Sales Tuesday, Nov. 15,
8:30 am, et
Up 1.2% Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.
Producer Price Index Wednesday, Nov. 16,
8:30 am, et
Up 0.3%,
Core up 0.2%
Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.
Industrial Production Wednesday, Nov. 16,
9:15 am, et
Up 0.4% Important. A measure of manufacturing sector strength. A lower than expected increase may lead to lower rates.
Capacity Utilization Wednesday, Nov. 16,
9:15 am, et
75.3% Important. A figure above 85% is viewed as inflationary. Weaker figure may lead to lower rates.
NAHB Housing Index Wednesday, Nov. 16,
10:00 am, et
63 Moderately Important. A measure of single family housing. Weakness may lead to lower mortgage rates.
Consumer Price Index Thursday, Nov. 17,
8:30 am, et
Up 0.3%,
Core up 0.2%
Important. A measure of inflation at the consumer level. Lower than expected increases may lead to lower rates.
Housing Starts Thursday, Nov. 17,
8:30 am, et
1050K Important. A measure of housing sector strength. Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Nov. 17,
8:30 am, et
258K Important. An indication of employment. Higher claims may result in lower rates.
Philadelphia Fed Survey Thursday, Nov. 17,
10:00 am, et
8.8 Moderately important. A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Higher Rates

The recent election result weighed heavily on the mortgage interest rate market. Surging stock prices and plummeting bond prices dominated headlines. Mortgage-backed securities often benefit when an event like this hits the newswires. Fear, real or perceived, is a strong emotion. Investors run for safety, MBS prices rise, and mortgage interest rates fall. We have seen a lot of this flight to quality buying over time. The bad side of this story is when these trades unwind as we saw last week. Bond traders fear the new president elect will make personnel changes at the Fed that will alter their low interest rate stance. Time will tell if the recent increases in mortgage interest rates will continue. The safe thing to do is to take advantage of mortgage interest rates at these still historically favorable levels and avoid future market volatility.


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