Mortgage Market in Review – September 29, 2014

October 1, 2014
Market Comment

Mortgage bond prices finished the week higher, which pushed rates lower. Prices improved Monday morning in response to weaker than expected existing home sales. Existing home sales printed at 5.05M. Traders expected sales at 5.2M units. Higher than expected new home sales data Wednesday tempered some of the earlier gains. New home sales printed at 504K. Traders expected sales to print at 435K. Durable goods orders fell 18.2%. That data was near expectations as the prior month saw a huge increase. Weekly jobless claims printed at 293K versus the expected 300K mark. The US economy expanded at a 4.6% rate in the second quarter as expected. This followed a contraction of 2.9% in Q1 2014. 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
Personal Income and Outlays Monday, Sept. 29,
8:30 am, et		 Up 0.2%,
Up 0.1%		 Important.  A measure of consumers’ ability to spend.  Weakness may lead to lower mortgage rates.
PCE Core Inflation Monday, Sept. 29,
8:30 am, et		 Up 0.1% Important.  A measure of price increases for all domestic personal consumption.  Weaker figure may help rates improve.
Consumer Confidence Tuesday, Sept. 30,
10:00 am, et		 92.2 Important.  An indication of consumers’ willingness to spend.  Weakness may lead to lower mortgage rates.
ADP Employment Wednesday, Oct. 1,
8:30 am, et		 228k Important.  An indication of employment.  Weakness may bring lower rates.
ISM Index Wednesday, Oct. 1,
10:00 am, et		 59.4 Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.
Weekly Jobless Claims Thursday, Oct. 2,
8:30 am, et		 287k Important.  An indication of employment.   Higher claims may result in lower rates.
Factory Orders Thursday, Oct. 2,
10:00 am, et		 Up 2.6% Important.  A measure of manufacturing sector strength.  Weakness may lead to lower rates.
Employment Friday, Oct. 3,
8:30 am, et		 6.1%,
Payrolls +195k		 Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.
Trade Data Friday, Oct. 3,
8:30 am, et		 $41.5b deficit Important.  Affects the value of the dollar.  A falling deficit may strengthen the dollar and lead to lower rates.

A Sure Thing

While nobody can accurately predict what the future holds for mortgage interest rates, the fact remains that they are historically low despite volatility the past months. It is difficult to justify the risk in floating when the excellent rates currently available are a sure thing.

Timing is one of the most important factors in success. Unfortunately, knowing the perfect time to lock in a loan is impossible until after the fact. While analysts constantly try to predict the future, the bottom line is they continually fall short in terms of accuracy. Recent history is a testament to this. At the beginning of the year analysts overwhelming predicted higher rates in response to the Fed’s tapering of MBS purchases. Rates fell in January, rose in the spring, and then fell again in the summer despite the Fed purchase reduction. Rates recently spiked higher near the end of summer but still remain historically low. The movements over the past 9 months show the challenge of making predictions. The good news is that the current low interest rates are here now. A cautious approach is wise to take advantage of rates at these levels.
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