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Mortgage Market in Review – October 20, 2014

Market Comment

Mortgage bond prices finished the week slightly higher which kept rates unchanged to a little lower. The financial markets were extremely volatile. MBS prices saw strong gains the beginning of the week and strong losses at the end. Rate improvements started Tuesday in response to weak economic data out of Germany. That positive trend continued Wednesday after the weaker than expected retail sales report. Unfortunately a significant portion of the earlier gains were erased after the release of the Fed Beige Book Wednesday and selling pressure continued in response to stronger than expected data the rest of the week. Housing starts, Philadelphia Fed, Industrial Production, Capacity Use, and Consumer Sentiment were all better than expected which caused rates to worsen significantly. Mortgage interest rates still finished the week better by approximately 1/4 of a discount point despite the extreme volatility.LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
Existing Home Sales Tuesday, Oct. 21,
10:00 am, et
5.058m Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
Consumer Price Index Wednesday, Oct. 22,
8:30 am, et
Unchanged,
Core up 0.1%
Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.
Weekly Jobless Claims Thursday, Oct. 23,
8:30 am, et
387k Important. An indication of employment. Higher claims may result in lower rates.
FHFA Housing Price Index Thursday, Oct. 23,
9:00 am, et
Up 0.2% Moderately Important. An indication of housing sector health. Lower house prices may result in lower rates.
Leading Economic Indicators Thursday, Oct. 23,
10:00 am, et
Up 0.2% Important. An indication of future economic activity. A smaller increase may lead to lower rates.
30-year Treasury TIPS Auction Thursday, Oct. 23,
1:15 pm, et
None Important. TIPS will be auctioned. Strong demand may lead to lower mortgage rates.
New Home Sales Friday, Oct. 24,
10:00 am, et
559k Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.

Existing Home Sales

The National Association of Realtors releases existing home sales data near the end of each month. The data is derived from a sampling of MLS data across the nation. The release shows the current sales rate for existing single-family, coops, and condos. A national figure and 4 regional figures are provided. The NAR Chief Economist indicated in February the current methodology used to calculate the benchmarks will be revised in the near future. There is no timetable for the revision.

The housing market is a critical component of the US economy. A house is usually one of the largest assets a consumer owns. Housing usually leads market recoveries. Unfortunately the housing industry remains in transition as the effects of massive foreclosures still weigh heavily. Most analysts agree that the housing market will remain wobbly for some time. The important thing to remember is that housing is a “local” issue. The maxim about housing being strongly tied to “location, location, location” still holds true. The overall housing market shows signs of rebound while there are areas that don’t follow the overall trend.

While the data usually isn’t a big market mover it still has the potential to result in some market volatility. Mortgage interest rates remain historically low. However, we have seen some spikes higher over the past few weeks. There is no guarantee that rates will remain low forever. Now is a great time to take advantage of rates at these levels. Floating in this environment is very risky.

 

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