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Mortgage Market Review – Where are rates headed?


Last Week in Review: The harsh winter weather throughout much of the country had a big impact on the housing market. Plus, the Fed met.

Forecast for the Week: Housing reports will be front and center, along with key news on inflation, economic growth, and consumer attitudes.

View: Sharing local statistics with clients and referral partners is easy with this resource.

Last Week in Review  
Time for a change. With spring officially here, the change of season will hopefully lead to a change of direction for the housing market, as the harsh winter weather contributed to several disappointing reports.

February Existing Home Sales fell by 0.4 percent from January to 4.60 million units on an annualized basis. While this number was in line with estimates, it was 7.1 percent below the 4.95 million units registered in February 2013. The National Association of Realtors cited the unusually harsh winter weather, tightening of credit, and higher home prices as the cause behind the stagnant sales data.

The harsh weather was also blamed for the weak Housing Starts reading for February, which came in at 907,000, making this the third straight monthly decline. In addition, the National Association of Home Builders Housing Market Index came in at 47 for March. Readings below 50 indicate that more builders view conditions as poor, rather than good. On a positive note, Building Permits, which are a sign of future construction, surged by 7.5 percent to 1.018 million. It will be important to see if readings improve once the weather becomes milder around the nation.

In other news to note, weekly Initial Jobless Claims rose by 5,000 in the latest week to 320,000. Claims continue to hover near lows seen in November, as the labor markets work through the post-recession malaise. The 4-week moving average, which irons out seasonal abnormalities, came in at 327,000, the lowest level since the end of November.

What does this mean for home loan rates? Despite some weaker than expected economic reports, the Fed announced more tapering to its Bond buying program. Beginning in April, the Fed will purchase $30 billion in Treasuries and $25 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) to help stimulate the economy and housing market. This is down from the original $85 billion per month that the Fed had been purchasing. I will be watching closely to see how this decision impacts the markets and home loan rates as we head further into spring.

The bottom line is that now remains a great time to consider a home purchase or refinance, as home loan rates remain attractive compared to historical levels. Let me know if I can answer any questions at all for you or your clients.

Forecast for the Week  
This week’s economic calendar is packed with important data on housing, inflation, and economic growth.

  • Housing data is plentiful this week with the S&P Case-Shiller Home Price Index and New Home Sales being reported on Tuesday. Pending Home Sales follows on Thursday.
  • We’ll get a read on consumer attitudes towards the U.S. economy with Consumer Confidenceon Tuesday and the Consumer Sentiment Index on Friday.
  • Wednesday brings February’s Durable Goods Orders, which are orders for items that last for an extended period of time.
  • Weekly Initial Jobless Claims will be released as usual on Thursday. Also look for the final reading of Gross Domestic Product for the fourth quarter of 2013.
  • Ending the week, the inflation-reading Personal Consumption Expenditures data along withPersonal Income and Personal Spending will be delivered on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond on which home loan rates are based.

When you see these Bond prices moving higher, it means home loan rates are improving and when they are moving lower, home loan rates are getting worse.

To go one step further a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Mortgage Bonds worsened after the Fed meeting but were able to stabilize. Home loan rates remain near historic best levels and I will continue to monitor them closely.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday March 21, 2014)
Japanese Candlestick Chart


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