Fed Meeting Statement Positive For Ongoing Mortgage Sector Support

Fed Meeting Statement Positive For Ongoing Mortgage Sector Support

There was potentially good news for mortgage rates on Wednesday as the Fed’s Federal Open Market Committee (FOMC) announced that its quantitative easing (QE) program would remain unchanged for the present.

Economists expect the Fed to begin tapering the amount of QE toward the end of the year in accordance with Chairman Ben Bernanke’s previous statements that “tapering” would likely begin near year-end.

No specific date for reducing the QE assets purchases was given.

Chairman Bernanke has previously indicated that the Fed will closely review domestic and global economic developments as part of its decision-making process for changing the QE program. Wednesday’s FOMC statement reaffirmed this plan.

Fed Cites Economic Expansion and Improving Labor Conditions

The FOMC statement cited modest economic expansion, improving labor markets and continued high unemployment levels as a basis for continuing its current level of QE.

The Fed’s mandate requires it to support price stability and low unemployment; reversals in these or other economic areas could cause the Fed to continue its QE at present levels. At present, economists expect QE to end in mid-2014.

The FOMC statement also indicated that the target federal funds rate will remain between 0.00 and 0.25 percent at least until the national unemployment rate falls to 6.50 percent. Chairman Bernanke did not give a press conference after Wednesday’s statement was released.

Quantitative Easing: Monthly Purchase of MBS, Treasury Securities Intended to Control Mortgage Rates

The Fed currently purchases $40 billion in mortgage-backed securities (MBS) and $45 billion in Treasury securities monthly. These purchases are intended to control long-term interest rates including mortgage rates.

When the Fed begins tapering and eventually concludes these asset purchases, demand for MBS and Treasury securities are expected to fall and their prices will likely fall as well. When prices for bonds include MBS fall, mortgage rates traditionally rise.

With mortgage rates recently moving up, reducing the level of the Fed’s QE asset purchases is cause for concern. Higher mortgage rates make homes less affordable; the combination of rising home prices and mortgage rates presents challenges for first-time home buyers and others without sufficient funds for meeting higher down payments and monthly mortgage payments.

Now would be a very good time to ask your trusted mortgage professional for a personal review of your mortgage situation.  Give them a call and ask for your private assessment today.

FOMC Minutes Reveal Fed May Curb Economic Support Program Before Year End

FOMC Minutes Reveal Fed May Curb Economic Support Program Before Year EndFOMC Minutes Suggest QE Tapering by Year-End

The minutes for June’s meeting of the Federal Open Market Committee (FOMC) suggest that committee members are mostly in agreement that the current quantitative easing program (QE) should begin winding down by year end, but the committee minutes are very clear concerning the committee’s intention to monitor inflation and ongoing economic and financial developments before taking action to reduce the current rate of QE.

The Fed currently purchases $85 billion monthly in Treasury securities and mortgage-backed securities (MBS). Investors fear that if the Fed rolls back QE too soon or too fast, it could cause long term interest rates such as mortgage rates to rise faster.

The Fed minutes indicate that factors the Fed will continue monitoring before making changes to QE include:

  • Labor market conditions
  • Indicators of inflationary pressures
  • Readings on financial developments

FOMC members also agreed that the Fed would not sell MBS it has accumulated after the economic support program ceases. When the Fed ceases QE, demand for mortgage-backed securities is expected to fall. If the Fed were to sell off MBS holdings in addition to stopping QE, MBS prices could fall sharply. In general, when MBS prices fall, mortgage rates rise.

The FOMC minutes indicate that the Fed intends to maintain the Federal Funds rate at 0.000 to 0.250 percent “for a considerable time after the monthly asset purchases cease.”  To be clear, the minutes do not reveal any specific dates for starting to wind down the program.

Concerns over financial conditions in Europe highlight the Fed’s intention to monitor global economic developments were discussed. Potential “spillover” of negative sentiments in response to Europe’s economic woes to U.S. financial markets were seen as a potential threat to the U.S. economic recovery.

Committee members found that although the economy showed moderate improvement since its last meeting, the national unemployment rate remains high at 7.60 percent. Members also noted that the numbers of long-term unemployed and those working part time jobs but wanting full time jobs remain higher than average. These conditions traditionally keep consumers from buying homes.

Housing: Upside-Down Mortgages Decreasing

Due to rapid increases in home values, the committee noted that fewer homeowners were under water on their mortgage loans. This is good news as homeowners can rebuild household wealth as their home equity increases. Having home equity also provides homeowners with the flexibility to sell or refinance their homes.

While housing is driving the economic recovery, high unemployment will likely keep the Fed from changing its QE policy in the short term.

Now may be a very good time to take advantage of still historically low mortgage interest rates before they rise. If you have specific questions on purchasing or refinancing your home mortgage loan and how these changes may affect you, please contact your trusted mortgage professional today.

What’s Ahead For Mortgage Rates This Week – July 1, 2013

What’s Ahead For Mortgage Rates This Week – July 1, 2013The past week was active for economic news and mortgage rates. The aftermath of the Fed’s indication that it may start dialing back its multi-billion dollar monthly purchases of Treasury and mortgage backed securities has sent mortgage rates to record highs.

If you’re thinking of buying a home, this may be one last chance for finding the best deal on mortgage rates; meanwhile, home prices continue trending up as well.

Here’s the scoop on last week’s activity affecting real estate markets:

Tuesday’s Case-Shiller Composite Indices for April demonstrate the momentum of recovery in many housing markets. As of April, national home prices had increased by 12.10 percent as compared to April 2012. April’s reading also exceeded March’s reading of 10.10 percent year-over-year.

FHFA released its home prices report for April and noted that the average price for homes with mortgages owned by Fannie Mae or Freddie Mac increased by 7.40 percent, which slightly surpassed the March reading of 7.20 percent.

The Department of Commerce released New Home Sales for May and reported 476,000 new homes sold on a seasonally-adjusted annual basis. This exceeded expectations of 453,000 new home sales and also surpassed April’s reading of 454,000 new homes sold.

Wednesday brought the Gross Domestic Product (GDP) report for the first quarter of 2013. The GDP grew by 1.80 percent against expectations of 2.40 percent and the previous quarter’s growth, also 2.40 percent.

Freddie Mac’s Primary Mortgage Market Survey (PMMS) brought the days of bargain basement mortgage rates to a halt as average mortgage rates for a 30-year fixed rate mortgage moved from last week’s 3.93 percent to 4.46 percent. Average rates for a 15-year fixed rate mortgage rose from 3.04 percent 3.50 percent. This was the largest weekly jump in mortgage rates in 26 years. 

Home buyers may also consider a 5/1 adjustable rate mortgage, which provides an average 5 year fixed rate of 2.74 percent.  The fixed mortgage rate converts to an adjustable rate after five years.

The National Association of REALTORS ® reported that Pending Home Sales in May rose by +6.70 percent to their highest level in 6 years.

Last week ended on a positive note with the Consumer Sentiment Index for June beating expectations of 83.0 and coming in at 84.1. May’s reading was 82.1; higher consumer confidence is likely driving demand for available homes.

Whats Ahead This Week

Next week’s scheduled economic news includes Construction Spending due on Monday and the ADP private sector jobs report is set for Wednesday.

Thursday the financial markets are closed as we celebrate the July 4th holiday.

Friday brings the Department of Labor’s Non-farm Payrolls Report and the National Unemployment Rate. If the unemployment rate stays steady at 7.60 percent, this may reduce fears that the Fed will start reducing its monetary easing program any time soon, which should help to slow the recent increases in mortgage rates.

What’s Ahead For Mortgage Rates This Week – June 24, 2013

What's Ahead For Mortgage Rates This Week - June 24, 2013Comments by Fed chairman Ben Bernanke after Wednesday’s FOMC meeting caused havoc in financial markets as investors anticipated the potential effects of any rollback of the Fed’s policy of quantitative easing (QE). Chairman Bernanke said that the Fed may begin reducing its $85 billion monthly purchase of Treasury securities and MBS toward the end of this year.

The chairman made it clear that any decision concerning QE would be based on careful review of current and developing economic conditions. QE is intended to keep long-term interest rates low; any reduction of the QE securities purchases could cause mortgage rates to rise.

Economic News Bodes Well For Housing

The week’s other economic news included more good news for housing. The NAHB/WF Housing Market Index for June came in ahead of expectations at 52, which surpassed the expected reading of 45 and May’s reading of 44. Any reading over 50 indicates that more builders surveyed believe that housing market conditions are positive.

Tuesday was busy for economic news. The Consumer Price Index for May rose from April’s reading of –0.40 percent to +0.10 percent in May, which was below expectations of +0.20 percent.

The Department of Commerce released its Housing Starts Report for May; the reading for May missed expectations of 953,000 housing starts and came in at 914,000 which exceeded April’s 856,000 housing starts. Increasing the number of available homes could help steady recently increasing home prices, but existing homes remain in short supply in many areas.

Fed Expects Moderate Improvement Continuing For Economy

Wednesday’s news involved the Fed’s FOMC meeting and press conference. The Fed stated after the meeting that it expects moderate improvement in economic condition and noted that housing, which was a primary cause of the economic downturn, is now leading the economy’s recovery.

Freddie Mac reported that the average rate for a 30-year fixed rate mortgage fell from 3.98 percent with 0.7 percent discount points to 3.93 percent with borrowers paying 0.8 percent in discount points.  The average rate for a 15-year fixed rate mortgage fell from 3.10 percent to 3.04 percent with 0.7 percent in discount points for both weeks. Investor response to the Fed’s mention of possibly reducing its QE program is likely to send mortgage rates up next week.

The National Association of REALTORS® released its Existing Home Sales report for May. Existing home sales came in at 5.18 million and beat projections of 5.00 million and April’s sales of 4.97 million existing homes.

Increasing sales of existing homes is good news as demand has exceeded supplies of existing homes in recent months. High demand drives up home prices and impacts affordability along with rising mortgage rates.

What’s Ahead For This Week

Next week’s scheduled news includes a number of housing related reports, FHFA Home Prices, the Case-Shiller Home Prices Report and New Home Sales are set for release Tuesday.

The Gross Domestic Product Report comes out on Wednesday. On Thursday, data for weekly jobless claims, consumer spending and pending home sales will be released.

Friday brings the Chicago Purchasing Managers Index and the Consumer Sentiment Index.

The data released in these reports will continue to inform the Fed’s decision-making with regard to bond purchasing and interest rate policy. It’s possible though, following the aggressive market sell-off activity from last week, that we may see a softening in long-term rates over the course of this week.