Mortgage Market: Window Of Opportunity Opens

    Last Week in Review: The economic report calendar was quiet, but a window of opportunity appeared.

    Forecast for the Week: Look for key reports on housing, consumer attitudes, inflation, manufacturing and economic growth. Plus the Fed meets.

    View: Conquer clutter with the great tips below.

    Last Week in Review  
    “If a window of opportunity appears, don’t pull down the shade.” Tom Peters. The markets were closed Monday in observance of the Martin Luther King, Jr. holiday and the economic calendar was light, but last week still brought an opportunity, as home loan rates reached some of their lowest levels in months.Despite the quiet calendar, there was news to note in the housing arena. The National Association of Realtors reported that Existing Home Sales rose by 1 percent from November to December to an annual rate of 4.87 million units. This was the first monthly gain in three months. For all of 2013, there were 5.09 million existing home sales, which was 9.1 percent higher than 2012. The housing market continues to rebound, though at a modest pace.Meanwhile on the labor front, weekly Initial Jobless Claims were reported at 326,000, up 1,000 in the latest week and nearly in line with expectations. Initial Jobless Claims have been trending lower since the distortions brought on by seasonal holiday hiring. The labor markets were pointed in a positive direction up until the weak December Jobs Report. The Fed will be watching closely to see if the December report was an anomaly…or a sign of things to come.

    What does this mean for home loan rates? The housing and labor arenas are two key areas that the Fed is monitoring, as it decides whether to further taper its Bond purchases. Remember that the Fed is now purchasing $40 billion in Treasuries and $35 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based) each month to stimulate the economy and housing market. This figure is down from the $85 billion in Bonds and Treasuries the Fed had been purchasing last year.

    The Fed has stated that its decision to further taper these purchases will be dependent on economic data. The upcoming Fed meeting on January 29-30 will be closely watched, as investors will be waiting to see if the Fed will taper these purchases further. This decision could have a big impact on Mortgage Bonds and home loan rates, and it’s a key story to watch this week and throughout the year.

     

    Forecast for the Week
    A busy economic calendar is ahead. Plus the Fed meets.

    • In housing news, New Home Sales will be released on Monday, the S&P/Case-Shiller Home Price Index on Tuesday, and Pending Home Sales on Thursday.
    • We’ll get a sense of how the consumer is feeling with Consumer Confidence on Tuesday, followed by the Consumer Sentiment Index on Friday.
    • Also on Tuesday, Durable Goods Orders for December will be released.
    • Look for Weekly Initial Jobless Claims and Gross Domestic Product on Thursday.
    • Ending the week, Friday brings a slew of key reports, including Personal Income, Personal Spending, the inflation-measuring Personal Consumption Expenditures, and Chicago PMI.

    In addition, the Federal Open Market Committee meeting kicks off on Tuesday, with the monetary policy statement set for delivery on Wednesday at 2:00 p.m. EST.

    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, Bonds have been on an improving trend, meaning home loan rates have also improved. The Fed meeting could have a big impact on the markets this week and I’ll be watching closely to see what happens.

    Chart: Fannie Mae 4.0% Mortgage Bond (Friday Jan 24, 2014)

    Fannie Mae Mortgage Bond

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