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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