What’s Ahead For Mortgage Rates This Week – October 7, 2013

What's Ahead For Mortgage Rates This Week- October 7, 2013This week’s economic news commentary has been dominated by the “what ifs” of a government shutdown; opinions of potential consequences are limited only by the number of commentators sharing their opinions.

Unfortunately, more concrete examples of the shutdown were evident last Tuesday and Friday.

The Department of Commerce delayed release of August’s Construction Spending report that were due last Tuesday and The Bureau of Labor Statistics delayed the release of September’s Non-farm Payroll and Unemployment that were due last Friday.

The ADP Employment report for September posted a reading of 166,000 private sector jobs added against expectations of 180,000 new jobs added. September jobs added surpassed August’s reading of 159,000 new jobs added in the private sector.

Mortgage Rates Remain Near Record Lows

Freddie Mac’s Primary Mortgage Market Survey released Thursday brought a third consecutive week of falling mortgage rates. 30-year fixed rate mortgages had an average rate of 4.22 percent down from 4.32 percent the previous week.

The average rate for a 15-year fixed rate mortgage fell by eight basis points from 3.37 percent to 3.29 percent and the average rate for a 5/1 adjustable rate mortgage fell to 3.03 percent from 3.07 percent.

Discount points were unchanged from last week at 0.70 percent for both 30-year and 15-year fixed rate mortgages and rose from 0.50 percent to 0.60 percent for 5/1 adjustable rate mortgage loans.

Weekly Jobless Claims were lower than projected. The reading of 308,000 new jobless claims was better than the 313,000 new jobs expected, but was higher than the prior week’s 307,000 new jobless claims.

Whats Coming Up Next

This week’s scheduled economic reporting is also subject to adjustment if the federal government’s budget is not resolved. The most recent FOMC meeting minutes are due on Wednesday; if released they are expected to provide details about the Fed’s decision not to change its current quantitative easing program.

Weekly jobless claims and Freddie Mac’s PMMS survey of average mortgage rates are due Thursday. The University of Michigan Consumer Sentiment Index for October is set for release on Friday.

Events effecting the Maine Mortgage Market 11.15 to 11.19

Mortgage bond prices were lower for last week pushing mortgage interest rates higher.  The Treasury auctions were mixed with generally decent foreign demand but rather lackluster overall results. The weekly jobless claims data came in lower than expected which was not bond friendly and pushed rates considerably higher Wednesday.  The bond market was closed Thursday for the holiday, which likely contributed to the volatility with thin trading conditions surrounding shortened trading week.  For the week interest rates finished worse by about 7/8 of a discount point.

The retail sales data Monday will set the tone for trading this week.  The inflation data on Tuesday and Wednesday have the greatest potential to move the financial markets.

LOOKING AHEAD – 11.15 to 11.19

Date & Time

Retail Sales Monday, Nov. 15,
8:30 am, et
Up 0.6% Important.  A measure of consumer demand.  A smaller than expected increase may lead to lower mortgage rates.
Business Inventories Monday, Nov. 15,
10:00 am, et
Up 0.6% Low importance.  An indication of stored-up capacity.  A significantly larger increase may lead to lower rates.
Producer Price Index Tuesday, Nov. 16,
8:30 am, et
Up 0.7%,
Core up 0.1%
Important.  An indication of inflationary pressures at the producer level.  Weaker figures may lead to lower rates.
Industrial Production Tuesday, Nov. 16,
9:15 am, et
Up 0.3% Important.  A measure of manufacturing sector strength.  A lower than expected increase may lead to lower rates.
Capacity Utilization Tuesday, Nov. 16,
9:15 am, et
75% Important.  A figure above 85% is viewed as inflationary.  Weakness may lead to lower rates.
Consumer Price Index Wednesday, Nov. 17,
8:30 am, et
Up 0.3%,
Core up 0.1%
Important.  A measure of inflation at the consumer level.  Lower than expected increases may lead to lower rates.
Housing Starts Wednesday, Nov. 17,
8:30 am, et
605k Important.  A measure of housing sector strength.  Larger than expected decreases may lead to lower rates.
Leading Economic Indicators Thursday, Nov. 18,
10:00 am, et
Up 0.5% Important.  An indication of future economic activity.  A smaller increase may lead to lower rates.
Philadelphia Fed Survey Thursday, Nov. 18,
10:00 am, et
2.0 Moderately important.  A survey of business conditions in the Northeast. Weakness may lead to lower rates.

Low Rates

Mortgage interest rates remain near historic lows.  Borrowers that choose to float in this environment expose themselves to an upside risk in mortgage interest rates.  The Fed has specifically stated, “Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”  This means the Fed believes inflation levels should increase.  Inflation, real or perceived, generally erodes the value of fixed income securities causing prices to fall and rates to rise.  If the Fed has its way it is very possible to see mortgage interest rates increase.  However, there are no certainties even with the Fed’s stated goals.  The Fed does not directly dictate mortgage interest rates but its activities have an indirect effect on rates.

Recent history attests to spikes and drops in rates on almost a weekly basis.  Last week was a prime example.  A cautious approach to interest rate exposure is prudent.