Mortgage rates improved last week.  The Fed’s release of the minutes for the June FOMC meeting was the most noteworthy economic event last week; the minutes repeated the Fed’s recent statement concerning the wind-down of its current monetary easing policy.  The minutes indicated that about half of meeting participants wanted to end the quantitative easing (QE) policy by year end, while “many others” preferred to end the program in 2014.  This split suggests that days are numbered for the Fed’s monthly purchases of bonds.

It remains unknown whether the bond market will continue to build on last weeks improvements or take a turn for the worse this week.  Financial markets and interest rates are expected to remain volatile throughout this busy week.  Fed Chairman Bernake is scheduled to deliver the semi-annual Humphrey-Hawkins report on monetary policy on Wednesday and Thursday:

 

Time (ET)

Statistic

For

Actual

Market Expects

Prior

08:30:00 AM

Retail Sales

Jun

0.40%

0.70%

0.50%

08:30:00 AM

Retail Sales ex-auto

Jun

0.00%

0.40%

0.30%

08:30:00 AM

CPI

Jun

0.30%

0.10%

08:30:00 AM

Core CPI

Jun

0.20%

0.20%

09:15:00 AM

Industrial Production

Jun

0.30%

0.00%

09:15:00 AM

Capacity Utilization

Jun

77.70%

77.60%

08:30:00 AM

Housing Starts

Jun

958K

914K

08:30:00 AM

Building Permits

Jun

1000K

974K

02:00:00 PM

Fed’s Beige Book

Jul

NA

NA

08:30:00 AM

Initial Claims

07/13/13

348K

360K

10:00:00 AM

Philadelphia Fed

Jul

5.3

12.5

10:00:00 AM

Leading Indicators

Jun

0.30%

0.10%

01:15:00 PM

10-year Treasury TIPS Auction

 

In this volatile rate environment  be careful when making rate decisions and to lock if the numbers make sense as mortgage rates are still at historic lows.

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What's Ahead For Mortgage Rates This Week - May 20, 2013Last week was jam-packed with economic news; here are some highlights with emphasis on housing and mortgage related news:

Monday: Retail sales for April increased to -0.1 percent from the March reading of -0.5 percent and also surpassed Wall Street’s downward forecast of -0.6 percent. Retail sales are important to economic recovery as sales of goods and services represent approximately 70 percent of the U.S. economy.

Tuesday: The National Federation of Independent Business (NFIB) released its Small Business Optimism Index for April with encouraging results. April’s index rose by 2.6 points to 92.1. A reading of 90.7 indicates economic recovery. This index is based on a survey of 1873 NFIB member businesses.

Wednesday: The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for May matched investor expectations with a reading of 44. At three points above the March reading of 41, this report suggests that builders are slowly gaining confidence in national housing markets.

Thursday: The U.S. Commerce Department reported that Housing Starts fell by 16.5 percent in April to a seasonally-adjusted annual level of 853,000 from 1.02 million housing starts in March. This reading fell short of investors’ consensus of 965,000 housing starts, however, this decrease was caused by the volatile apartment construction sector.

Friday: Consumer sentiment for May surpassed investor expectations of +0.3 percent and came in at +0.6 percent. As consumer sentiment improves, it’s likely that more consumers will buy homes.

Rising Interest Rates Show Strengthening Economy

Mortgage rates rose last week according to Freddie Mac. The average rate for a 30-year fixed rate mortgage rose from 3.42 percent to 3.51 percent with borrowers paying 0.70 in discount points and all of their closing costs.

15-year fixed rate mortgages rose from 2.61 percent last week to 2.69 percent this week with borrowers paying 0.70 in discount points and all of their closing costs.

This news is consistent with a strengthening economy, but is narrowing opportunities for home buyers seeking both affordable home prices and low mortgage rates.

Federal Open Market Committee Minutes To Be Released This Week

 

Economic Calendar:

Week Of Mon, May 20 2013 – Fri, May 23 2013

Time

Event

Period

Unit

Forecast

Prior

Mon, May 20 – Tue May 21
No Significant Scheduled Data

Wed, May 22
07:00 Mortgage market index

w/e

876.6

10:00 Existing home sales

Apr

ml

5.00

4.92

10:00 Exist. home sales % chg

Apr

%

1.5

-0.6

14:00 FOMC Minutes

Thu, May 23
08:30 Initial Jobless Claims

w/e

K

346

360

08:58 Markit Manufacturing PMI

Mar

%

52.0

52.1

09:00 Monthly Home Price mm

Mar

%

0.9

0.7

10:00 New home sales-units mm

Apr

ml

0.425

0.417

13:00 10yr TIPS Auction

Fri, May 24
08:30 Durables Goods Orders

Apr

%

1.6

-6.9

* mm: monthly | yy: annual | qq: quarterly | “w/e” in “period” column indicates a weekly report

* Q1: First Quarter | Adv: Advance Release | Pre: Preliminary Release | Fin: Final Release

* (n)SA: (non) Seasonally Adjusted

* PMI: “Purchasing Managers Index”

 

Looking ahead, economic news for this week includes the Existing Home Sales report for April with an expectation of 5.00 million homes sold on a seasonally-adjusted annual basis against the March tally of 4.93 million homes sold.

Also set for release on Wednesday are the Federal Open Market Committee (FOMC) Minutes for the meeting held April 30 and May 1. The FOMC meetings typically include discussions of the Federal Reserve’s current policy on quantitative easing (QE) which consists of the Fed buying $85 billion per month in MBS and treasury bonds.

When the QE program ends, mortgage rates will likely increase as bond prices decline due to lesser demand.

Thursday brings the weekly Jobless Claims Report along with New Home Sales for April. The consensus for new homes sold is 430,000 as compared to the March reading of 417,000 new homes sold.

The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, will release its Home Price Index for March on Thursday.

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Fed Minutes ReleasedThe Federal Open Market Committee (FOMC) released minutes from its January meeting last Wednesday, as it generally does three weeks following the most recent meeting.  

The FOMC is a committee within the Federal Reserve System tasked with overseeing the purchase and sale of US Treasury securities by the Fed.

The Federal Reserve makes key decisions regarding interest rates and looks to this committee for advice on how and when to take action.

The Future Of Quantitative Easing

One of the main topices that Fed leaders discussed was the future of its ongoing program of quantitative easing (QE).

Currently, the Fed plans to continue its monthly purchase of treasury bonds and mortgage-backed securities (MBS) with the objective of keeping the inflation rate at or below 2 percent.

The Fed plans to phase out quantitative easing when the national unemployment rate reaches 6.5 percent.

Fed leaders opposed to current quantitative easing brought up concerns about risk exposure to the Fed as it continues acquiring large quantities of bonds and mortgage-backed securities.

Other concerns included the potential for negative impact on financial markets if the Fed sustains its current policy of quantitative easing.

The Risk Of Inflation Creates Pause

Inflationary risks were also cited as a reason for re-evaluating the current policy for quantitative easing.

As the fed continues to purchase more and more mortgage-backed securities to keep interest rates down, a higher potential risk for inflationary pressure results.

Rising inflation rates would cause mortgage rates to worsen.

FOMC members concerned about current policy for quantitative easing suggested that the Fed should prepare to vary the timing of its purchases according to economic conditions rather than committing to scheduled purchases of specific amounts of bonds and mortgage-backed securities.

The next Federal Open Market Committee meeting is scheduled for March 19-20, 2013.

 

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Freddie Mac Mortgage RatesMortgage rates worsened last week amid evidence of an improving economy. Conforming mortgage rates climbed in Virginia and nationwide, rising to a 4-month high.

Freddie Mac has the average 30-year fixed rate mortgage rate at 3.53% for borrowers willing to pay 0.7 discount points plus a full set of closing costs.

There was plenty of news on which for rates to move last week.  First, the Federal Open Market Committee (FOMC) met and voted to hold the Fed Funds Rate in its current target range near 0.00 percent. The Fed also recommitted to purchasing mortgage-backed securities (MBS) and Treasury securities on the open market until such time as the national Unemployment Rate reaches 6.5%, or until inflation rates rise.

Then, Friday, it was shown in the Non-Farm Payrolls report that the national jobless rate had climbed to 7.9 percent, a statistic Wall Street pinned to Hurricane Sandy. In addition, it was shown that 157,000 net new jobs were added to the U.S. economy in January.

This was a slight improvement from the month prior’s revised figures, and marked the 27th consecutive month of U.S. job growth.

Also last week, the National Association of REALTORS® reported the December Pending Home Sales Index to be lower than expected; largely the result of shortages of available homes in many areas.

In addition, Durable Orders for December were more than twice what investors expected; a further indication of a strengthening U.S. economy.

Lastly, the ISM Index for January surpassed Wall Street’s expectations. This manufacturing index is considered an indicator of future inflationary trends. An upward trend in this index suggests rising mortgage rates. While current mortgage rates remain relatively low, they can be expected to continue rising as the economy improves.

This upcoming week will be quieter with fewer economic series scheduled for release. Factory Orders for December will be announced, as will the ISM Services Index and Jobless Claims. Mortgage rates may continue to rise.

Date Time (ET) Statistic For Market Expects
02/04/13 10:00:00 AM Factory Orders Dec 2.40%
02/05/13 10:00:00 AM ISM Services Jan 55.6
02/07/13 08:30:00 AM Initial Claims 02/02/13 360K
02/07/13 08:30:00 AM Productivity-Prel Q4 -1.20%
02/07/13 08:30:00 AM Unit Labor Costs Q4 2.40%
02/07/13 03:00:00 PM Consumer Credit Dec $11.9B
02/08/13 10:00:00 AM Wholesale Inventories Dec 0.30%

 

At best the future is unclear and where interest rates are going is unknown.  We do know mortgage rates have risen recently and are likely to be volatile in the future.  Now is a great time to take advantage of rates near historic lows and reduce the uncertainty of a future purchase or refinance.

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FOMC statementThe Federal Reserve’s Federal Open Market Committee (FOMC) voted to maintain the Federal Funds Rate within its current range of zero to 0.25 percent, and to continue its current stimulus program of purchasing $85 billion monthly in Treasury bonds and mortgage-backed securities (MBS).

Citing weather-related events such as Hurricane Sandy and drought in the Midwest, the committee said in its statement that information received since its December 2012 meeting “suggests that growth in economic activity has paused in recent months in large part because of weather-related disruptions and other transitory factors.”

Concerns over the then-looming fiscal cliff crisis may have also contributed to the economic contraction during the last quarter of 2012. Positive economic trends observed by the Fed included:

  • Improved household spending
  • Improving housing markets
  • Growth in business fixed investments

The Fed initiated its third round of quantitative easing (QE3) in September as part of an ongoing effort to hold down interest rates and to encourage business spending. The benchmark Federal Funds Rate will remain between zero and.0.25 percent until the unemployment rate falls to 6.5 percent and provided that inflation remains stable.

The Fed Funds Rate has stayed near zero since December 2008.

The national unemployment rate was 7.8 percent in December, and Wall Street expects it to be 7.7 percent for January. The Department of Labor will release its monthly jobs report on Friday; this report includes the monthly unemployment rate. Inflation is expected to remain at or below the Fed’s target level of 2.0 percent or less for the medium-term.

While noting that “strains on global financial markets have eased somewhat,” the FOMC said that it “continues to see downside risks to the economic outlook.” Low overall interest rates and gradual inflation work in favor of home buyers as home prices and mortgage rates are likely to rise at a gradual pace.

Mortgage rates in Richmond improved slightly after the FOMC release.

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FOMC meeting this weekMortgage rates rose last week as investors gained confidence in the global economy. China and Europe posted better-than-expected manufacturing rates, U.S. Jobless Claims fell for the second straight week, and the worst of the European debt crisis appears to have passed.

Last week’s economic news provided further evidence of a strengthening U.S. economy.

The National Association of REALTORS® released its Existing Home Sales report, which indicates that existing home sales improved by 13 percent on a year-over-year basis and are now at their highest point since 2007. The group expects sales of existing homes to increase by 9 percent in 2013.

The Commerce Department released its monthly New Home Sales report; while new home sales for December fell short of Wall Street’s expectations, sales of new homes are almost 20 percent higher than they were one year ago.

Growing demand for homes coupled with lower inventories of available homes suggests that the days of rock-bottom home prices and low mortgage rates are dwindling.

According to Freddie Mac, the average mortgage rate for a 30-year fixed rate loan was 3.42 percent with borrowers paying 0.7 percent in discount points plus closing costs. The average rate for a 15- year fixed rate mortgage was 2.71 percent with borrowers paying 0.7 percent in discount points plus closing costs.

While slight, the week-over-week increase in mortgage rates in Richmond could become a trend.

Weekly Jobless Claims fell below Wall Street forecasts for the second week in a row. 330,000 new jobless claims were filed; far fewer new claims were filed than the 360,000 new jobless claims expected by investors. New jobless claims also fell below the prior week’s 335,000 new jobless claims. Fewer jobless claims are a sign of a stabilizing economy.  Mortgage rates typically rise as investors gain confidence in the economy and financial markets.

This week’s economic news calendar is jam-packed.

 

Date Time (ET) Statistic For Actual Market Expects
01/28/13 08:30:00 AM Durable Orders Dec 4.60% 1.60%
01/28/13 10:00:00 AM Pending Home Sales Dec 0.00%
01/29/13 09:00:00 AM Case-Shiller 20-city Index Nov 5.20%
01/29/13 10:00:00 AM Consumer Confidence Jan 65.1
01/30/13 08:15:00 AM ADP Employment Change Jan 175K
01/30/13 08:30:00 AM GDP-Adv. Q4 1.00%
01/30/13 02:15:00 PM FOMC Rate Decision Jan 0.25%
01/31/13 08:30:00 AM Initial Claims 01/26/13 345K
01/31/13 08:30:00 AM Personal Income Dec 0.70%
01/31/13 08:30:00 AM Personal Spending Dec 0.30%
01/31/13 08:30:00 AM PCE Prices – Core Dec 0.10%
01/31/13 08:30:00 AM Employment Cost Index Q4 0.50%
01/31/13 09:45:00 AM Chicago PMI Jan 50.5
02/01/13 08:30:00 AM Nonfarm Payrolls Jan 180K
02/01/13 08:30:00 AM Nonfarm Private Payrolls Jan 193K
02/01/13 08:30:00 AM Unemployment Rate Jan 7.70%
02/01/13 10:00:00 AM ISM Index Jan 50.5
02/01/13 10:00:00 AM Construction Spending Dec 0.50%

 

Investors await the outcome of the  Federal Open Market Committee’s first scheduled meeting of 2013, treasury auctions are scheduled for Tuesday, Wednesday and Thursday, and the Pending Home Sales Index will be released.  Plus, the Department of Labor’s Non-farm Payrolls Report and Unemployment Report will be released Friday morning.

While we remain bearish for the interest rate markets overall; the recent spike is likely a little too much in too little time. The 2.00% level is likely to hold as a near term support. The Fed is still in the markets purchasing $85B of treasuries and MBSs, that should support rates to some extent. The Wednesday policy statement and Friday’s Jan employment report should dictate whether the 10 yr will breach 2.00%. The FOMC policy statement must convince markets the Fed is not about to change its QE policy with supportive comments that the economy isn’t as strong as markets presently believe. The stock market rise has dealt a serious blow to the near term interest rate markets; it is however in very overbought territory at the current levels, a retracement isn’t far off and when it occurs the rate markets will see some improvement but not likely to change the bearish longer term outlook. Mortgage rates and treasury rates are now at the highest levels since last April.

 

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Jobs data moves mortgage rates higherMortgage rates in Richmond rose during the first week of 2013.

The fiscal cliff crisis was resolved prior to the market’s opening Wednesday, when legislators voted to approve a deal. While many tax cuts were extended for taxpayers earning less than $450,000 annually, other facets of the fiscal cliff issue are yet to be addressed, including budget cuts for federal government agencies.

Investors were surprised to learn that the Fed may end its third round of quantitative easing (QE3) sometimes in 2013. The FOMC meeting minutes for December 2012 suggested that Fed support for its QE3 program has waned as the economy has improved.

First-time jobless claims increased for the week ending December 29, 2012 to 372,000 from the prior week’s 350,000, worse than Wall Street’s consensus opinion of 360,000 new jobless claims.

The December 2012 Non-Farm Payrolls surpassed analyst expectations, posting 155,000 net new jobs for the month. The report also showed the national Unemployment Rate rising one-tenth of one percentage point to 7.8%. When the jobless rate falls to 6.5%, the Federal Reserve is expected to begin raising the Fed Funds Rate from its current target range near zero percent.

Overall, mortgage rates rose by as much as 0.25 percentage points last week. However, because the increase occurred wholly between Wednesday and Friday, Freddie Mac’s weekly mortgage rate survey failed to include it.

Freddie Mac reported the previous week’s average rate for a 30-year fixed rate mortgage was 3.34 percent for borrowers paying 0.7 percent discount points plus closing costs. The average rate for a 15-year fixed rate mortgage was 2.64 percent for borrowers paying 0.7 discount points plus closing costs.

As this week opens, mortgage rates are considerably higher.

Date Time (ET) Statistic For Market Expects
01/08/13 01:15:00 PM 3-year Treasury Note Auction    
01/08/13 03:00:00 PM Consumer Credit Nov $10.6B
01/09/13 01:15:00 PM 10-year Treasury Note Auction    
01/10/13 08:30:00 AM Initial Claims 01/05/13 366K
01/10/13 10:00:00 AM Wholesale Inventories Nov 0.10%
01/10/13 01:15:00 PM 30-year Treasury Note Auction    
01/11/13 08:30:00 AM Trade Balance Nov -$41.8B
01/11/13 08:30:00 AM Export Prices ex-ag. Dec NA
01/11/13 08:30:00 AM Import Prices ex-oil Dec NA

This week’s scheduled economic news includes Treasury auctions on Tuesday, Wednesday and Thursday; weekly Jobless Claims report on Thursday; and not much else. There will be planned speeches, however, from five members of the Federal Reserve, including Richmond Federal Reserve President Jeffrey Lacker.  Fed President Lacker was the lone dissenting vote among voting FOMC members in each of last year’s policy votes.

US financial markets (stocks and bonds) are due for retrenchments after the rapid changes over the past week. The 10 yr note and MBSs are very oversold in the near term, we expect some improvement this week but it won’t change the bearish outlook for the rate markets. The stock market is equally over-extended on its recent rally, look for some pull-back this week; as with the bond market, any retrenchment won’t likely change the bullish outlook for equities.

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Mortgage rates drop, according to Freddie MacMortgage bonds worsened last week, moving mortgage rates higher. Economic news was mostly positive and the Federal Open Market Committee (FOMC) changed some of Wall Street expectations for future monetary policy.

Freddie Mac reported the average 30-year fixed rate mortgage rate at 3.32 percent nationwide for borrowers willing to pay an accompanying 0.7 discount points plus closing costs. The average 15-year fixed rate mortgage rate was listed at 2.66 percent nationwide with an accompanying 0.6 discount points plus closing costs.

Both mortgage rates had climbed by week’s end, however. Mortgage rates made their best levels Monday afternoon. Between Tuesday and Friday, mortgage rates in Richmond climbed.

Also last week, the National Association of Homebuilders/First American Improving Markets Index (IMI) reported 201 improving metropolitan economies nationwide. This index uses data including local employment statistics and home values to determine whether an area’s economy is “improving”.

76 new areas were added to the IMI list in December as compared to November. The geographic diversity the newly-added markets suggests an overall improvement in the national economy.

Last week’s major event, however, was the 2-day Federal Reserve meeting, which adjourned Wednesday.

The post-meeting press release after included the Fed’s commitment to hold the Fed Funds Rate near zero percent where it’s been since December 2008. However, the Fed announced a change to in its plans to raise the Fed Funds Rate from near-zero at a future date.

Previously, the Fed had said it would raise the Fed Funds Rate beginning in mid-2015. Now, the Fed says it will start to raise rates when the national unemployment rate reaches 6.5 percent.

This week, mortgage rates have a lot to move on including Housing Starts (Wednesday) and Existing Home Sales (Thursday) from the housing sector; Jobless Claims (Thursday) from the Labor Department; and a key inflation reading from the Department of Commerce. Each has the capability to move mortgage rates.

The question this week is whether or not Congress and the Administration can come to an agreement to avoid going over the Cliff. If no progress is made politicians will have only a few days next week to get something accomplished. Treasury will auction $99B of notes beginning Monday through Wednesday (2 yr, 5 yr and 7 yr notes) on sale. Technically the near term outlook remains slightly bearish for the bond and MBS markets. The bond market held captive to the Cliff talks as are the global stock markets.

Remember rates are historically very favorable and financial conditions can change quickly.

 

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Putting the FOMC statement in plain EnglishThe Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent Wednesday.

For the tenth consecutive meeting, the FOMC vote was nearly unanimous. Richmond Federal Reserve President Jeffrey Lacker was the lone dissenter in the 9-1 vote.

The Fed Funds Rate has been near zero percent since December 2008.

In its press release, the Federal Reserve noted that, since its last meeting in late-October, the U.S. economy has expanded “at a moderate pace” despite “weather-related disruptions”. It also acknowledged that “strains in global financial markets” remain a threat to U.S. economic growth.

This comment is in direct reference to the Eurozone, its sovereign debt concerns, and its nation’s economies.

The Fed included the following observations in its statement, too :

  1. Growth in employment is expanding but unemployment is elevated
  2. Inflation pressures are stable, and below the Fed’s target range of 2%
  3. Business spending on equipment and structures has slowed

In addressing the housing market, the Fed said that there has been “further signs” of improvement and the group re-affirmed its commitment to the $40-billion monthly QE3 bond buying program.

QE3 is meant to suppress U.S. mortgage rates from rising too high, too quickly.

Lastly, the Federal Reserve announced an explicit economic target for when it will begin to consider raising the Fed Funds Rate from its current target range near 0.000%. When the national Unemployment Rate reaches 6.5%, the Fed said, it will likely move to start raising its benchmark borrowing rate. 

Previously, the Fed had provided only a date-based target of mid-2015.

The 6.5% Unemployment Rate target may be pre-empted by rising inflation rates. The Fed does not expect price pressures to mount prior to jobless rates dropping from the current 7.7% levels, however.

Mortgage rates in Henrico are rising post-FOMC announcement. Many lenders raised mortgage rates mid-day Wednesday in response to the Fed’s statement. 

The FOMC’s next scheduled meeting is a two-day event scheduled for January 29-30, 2013.

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Fed Funds RateThe Federal Open Market Committee (FOMC) begins a 2-day meeting today, its last of 8 scheduled meetings this year.

The Federal Open Market Committee is a 12-person subcommittee within the Federal Reserve. It’s the group which votes upon U.S. monetary policy. 

The monetary policy action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the interest rate at which banks borrow money from each other overnight.

Since late-2008, the Fed Funds Rate has been near zero percent.

Prime Rate, a business and consumer interest rate used in lines of credit and credit card rates, is based on the Fed Funds Rate. Prime Rate has been similarly unchanged since 2008.

One rate which the Federal Reserve does not set is the 30-year fixed rate mortgage (FRM) rate.

Like all other mortgage rates, the 30-year FRM is based on the market value of mortgage-backed bonds; securities bought and sold by investors.

There is no correlation between the Federal Reserve’s Fed Funds Rate and the everyday homeowner’s 30-year fixed rate mortgage rate. Some months, the two rates converge. Other months, they diverge. Since 2000, they’ve been separated by as many as 5.29 percentage points.

They’ve been as close as 0.52 percentage points.

However, although the Federal Reserve does not set U.S. mortgage rates, that doesn’t mean that it can’t influence them. The Fed’s post-meeting press release has been known to make mortgage rates get volatile.

If, in its post-meeting press release, the Fed notes that the U.S. economy is slowing and that new economic stimulus is warranted, mortgage rates will likely fall throughout Virginia. This is because additional Fed stimulus would likely lend support to U.S. mortgage markets which would, in turn, boost demand for mortgage-backed bonds.

Conversely, if the Fed acknowledges stronger-than-expected growth in the U.S. economy and no need for new stimulus, mortgage rates are expected to rise.

Either way, mortgage rates will change Wednesday upon the FOMC’s adjournment — we just don’t know in which direction. Rate shoppers may see fluctuations of as much as 0.250 percent.

The FOMC adjourns at 12:30 PM ET.

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