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Mortgage Market in Review – October 27, 2014

Market Comment Mortgage bond prices finished the week near unchanged, which kept rates relatively in check. Rates improved the beginning of the week tied to continued economic woes in the euro zone. Unfortunately, some of the improvements were erased Tuesday in response to stronger than expected housing data. Rates were calm mid-week after tame consumer inflation readings. Stronger than expected Leading Economic Indicators data Thursday morning caused a little volatility. Stock strength and slightly better than expected weekly jobless claims data also caused some rate concerns. New home sales data Friday morning ended us on a positive note. Mortgage interest rates still finished the week better by approximately 1/8 of a discount point despite the volatility.

LOOKING AHEAD

Economic Indicator Release Date & Time Consensus Estimate Analysis
Durable Goods Orders Tuesday, Oct. 28, 8:30 am, et Up 1.4% Important.  An indication of the demand for “big ticket” items.  Weakness may lead to lower rates.
Consumer Confidence Tuesday, Oct. 28, 10:00 am, et 85.8 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.
Fed Meeting Adjourns Wednesday, Oct. 29, 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, Oct. 30, 8:30 am, et 287k Important.  An indication of employment.   Higher claims may result in lower rates.
Q3 Advance GDP Thursday, Oct. 30, 8:30 am, et Up 1.9% Very important.  The aggregate measure of US economic production.  Weakness may lead to lower rates.
Personal Income and Outlays Friday, Oct. 31, 8:30 am, et Unchanged, Up 0.1% Important.  A measure of consumers’ ability to spend.  Weakness may lead to lower mortgage rates.
PCE Core Inflation Friday, Oct. 31, 8:30 am, et Up 0.1% Important.  A measure of price increases for all domestic personal consumption.  Weaker figure may help rates improve.
Q3 Employment Cost Index Friday, Oct. 31, 8:30 am, et Up 0.4% Very important. A measure of wage inflation.  Weakness may lead to lower rates.
U of Michigan Consumer Sentiment Friday, Oct. 31, 10:00 am, et 85.6 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

Uncertainties

Recent headlines weigh heavily on economies around the globe.  Plummeting oil prices, ISIS, Ukraine, Ebola and talk of a third recession in Europe are just a few of the recent topics that dominate headlines.

Mortgage-backed securities often benefit when these types of stories hit the press.  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 at times this month.  Mortgage rates go from a lull to wild spikes and dips from minute to minute on some trading days.  Time will tell if the recent increase in volatility will continue.  The safe thing to do is to take advantage of mortgage interest rates at these historically favorable levels.

Copyright 2014. All Rights Reserved. Mortgage Market Information Services, Inc. www.ratelink.com The information contained herein is believed to be accurate, however no representation or warranties are written or implied.