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Mortgage Market in Review – September 26, 2016

Market Comment

Mortgage bond prices finished the week higher which helped rates fall.  There was some seesaw trading but within a relatively narrow ahead of the Fed meeting Wednesday.  The Fed reduced growth projections for this year and mortgage bond prices rose which pushed rates lower Wednesday afternoon and into Thursday morning.  The data was mixed.  Housing Starts were 1142K versus the expected 1186K. Weekly jobless claims printed at 252K and continuing claims, a summation of all receiving benefits, at 2,113K. Expectations were for claims at 262K and continuing claims at 2,143K.  Existing home sales printed at 5.33M units versus the expected 5.5M units.  Housing prices rose 0.5% in July according to the FHFA Housing Price Index.  Mortgage interest rates finished the week better by approximately 3/8 of a discount point.


LOOKING AHEAD

Economic
Indicator
Release
Date & Time
Consensus
Estimate

Analysis
New Home Sales Monday, Sept. 26,
10:00 am, et
654K Important.  An indication of economic strength and credit demand.  Weakness may lead to lower rates.
Consumer Confidence Tuesday, Sept. 27,
10:00 am, et
101 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.
Durable Goods Orders Wednesday, Sept. 28,
8:30 am, et
Up 2.2% Important.  An indication of the demand for “big ticket” items.  Weakness may lead to lower rates.
Q2 GDP Third Estimate Thursday, Sept. 29,
8:30 am, et
Up 1.1% Very important.  The aggregate measure of US economic production.  Weakness may lead to lower rates.
Weekly Jobless Claims Thursday, Sept. 29,
8:30 am, et
255K Important.  An indication of employment.   Higher claims may result in lower rates.
Personal Income and Outlays Friday, Sept. 30,
8:30 am, et
Up 0.3%,
Up 0.1%
Important.  A measure of consumers’ ability to spend.  Weakness may lead to lower mortgage rates.
PCE Core Inflation Friday, Sept. 30,
8:30 am, et
Up 0.2% Important.  A measure of price increases for all domestic personal consumption.  Weaker figure may help rates improve.
U of Michigan Consumer Sentiment Friday, Sept. 30,
10:00 am, et
89.8 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.

No Fed Rate Change

The Federal Open Market Committee left rates unchanged last week as expected.  They also reduced the expected growth rate for the economy (GDP) from 2% to 1.8%.  The bond market generally favors poor economic data.  Lower growth signals economic concern and helps mortgage interest rates stay low.

The Fed has a dual mandate from Congress, full employment and price stability. With the unemployment rate running below 5% it can be argued that the employment mandate has been met. What is lacking is inflation. The Fed would like to see a 2% inflation rate, which has been elusive. The slower the economy grows the more difficult it will be for inflation to rise.  However, rate hikes are not off the table.  Yellen stated, “Our decision does not reflect a lack of confidence in the economy.”  In addition, “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”  Now is a great time to take advantage of the currently low mortgage interest rates.


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