Caroline's Weekly Market Review

It was a volatile week for mortgage rates. The FOMC Minutes suggested that the Fed will begin to taper its bond purchases in the near future as expected, but a surprising decline in the New Home Sales data made that outcome less certain. After the offsetting influences, mortgage rates ended the week with little change.

The FOMC Minutes from the July 31 Fed meeting were released on Wednesday, but they did little to remove the uncertainty about when the Fed will begin to scale back its bond purchase program. The main takeaway from the Minutes is that Fed officials were split at the meeting about the timing for the taper to begin. Fed officials agree that the decision should be based on the performance of the economy, but they diverge on what constitutes sufficient strength. Bottom line, though, is that there was nothing in the Minutes to contradict investor expectations that the Fed will begin to taper in September or October, and mortgage rates rose after the release of the Minutes.

Friday's New Home Sales report caught investors by surprise. Data released earlier in the week showed that July Existing Home Sales increased 7% from June and were 17% higher than one year. This lead investors to believe that the solid improvement seen in the housing sector this year would continue. However, July New Home Sales showed a decline of 13% from June. Existing Home Sales, which cover roughly 90% of home sales, are based on closings, while New Home Sales measure signed contracts. As such, New Home Sales reflect more current economic conditions than Existing Home Sales. Several Fed officials have expressed concerns that rising rates would slow the pace of economic growth. The decline in New Home Sales provides clear support that these concerns are justified. The question is whether the data will be enough to cause the Fed to hold off longer before tapering its bond purchases. The reaction from investors reflected the belief that tapering may be farther away, as mortgage rates improved after the release of the report.

This week, Durable Orders will be released on Monday. Pending Home Sales will come out on Wednesday. Revisions to second quarter GDP will be released on Thursday. Friday will be the big day with Core PCE inflation, Personal Income, and Chicago PMI. Consumer Confidence and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.

Kwest Mortgage Spotlight

I am so excited to be putting together the Kwest Home Spotlight each week! This was my first week, and although video recording myself is super awkward, I am loving being able to promote our favorite realtor's homes! Each week, we will have a new listing to present to our fans/followers/clients.

Be sure to check out this week's Kwest Home Spotlight:

http://www.youtube.com/watch?v=5avyTQIz9po&feature=youtu.be

I HOPE EVERYONE HAS A GREAT WEEKEND

Caroline's Weekly Market Review

Last week, a broader consensus formed that the Fed will begin to taper its bond purchase program in September or October, and investors reacted by selling US stocks and bonds. The US economic data released this week provided little reason for the Fed to wait, and the European data showed unexpected strength. As a result, mortgage rates ended the week higher.

The Fed's massive bond purchase program powered stocks to record highs and helped push mortgage rates to historic lows. The Fed has indicated that it is almost time to begin to scale back the program, and the only reason to wait would be unexpected weakness in economic growth. This week's labor market and Retail Sales data was stronger than expected, though, causing more investors to anticipate that the Fed will taper in the next month or two. Both stocks and bonds were negatively affected by the growing expectations.

Mortgage rates received additional upward pressure from the economic news out of Europe. After eighteen months in a recession, second quarter GDP in the euro zone increased modestly, exceeding the consensus. In particular, Germany and France performed well. The recovery in Europe caused global interest rates to rise this week, including US mortgage rates.

The most highly anticipated economic release this week will take place on Wednesday when the FOMC Minutes from the July 31 Fed meeting are revealed. These detailed Minutes provide additional insight into the debate between Fed officials. The biggest economic data will be Existing Home Sales on Wednesday and New Home Sales on Friday. The only other report will be Leading Indicators on Thursday. Investors also will be eager to hear comments from Fed officials.

Caroline's Weekly Market Review

Following the roller coaster ride the week before last, this past was one of the quietest weeks for mortgage rates in a very long time. While last week contained a Fed meeting, Employment report, and GDP data, there was very little significant economic news this week, and mortgage rates barely changed.

In addition to a lack of major economic data, another reason for the limited volatility last week was that the message conveyed from the Fed was very consistent. The largest influence on mortgage rates in recent months has been shifting expectations for future Fed policy. According to the Fed officials that spoke this week, the Fed expects to begin to taper its bond buying program later this year. The exact timing will depend on future economic data. Investors currently expect that the tapering will begin in September or October. This means that the reaction to major economic data likely will continue to be exaggerated, as we saw on several occasions last week.

Last week President Obama laid out his plan for restructuring Fannie Mae and Freddie Mac. It is very similar to what is being proposed in the Senate, so there were no big surprises. The primary component of the plan is to shift credit risk on mortgages from the government to the private sector. There was no timetable provided, but any changes are expected to take years. The announcement created a lot of headlines, but did not have an immediate impact on mortgage rates and is not likely to affect rates anytime soon.

 

The most significant economic data this week will be the Retail Sales data and the monthly inflation reports. Retail Sales account for about 70% of economic activity and will be released on Tuesday. The Producer Price Index (PPI) focuses on the increase in prices of "intermediate" goods used by companies to produce finished products and will come out on Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production will come out on Thursday, and Housing Starts will be released on Friday. Empire State, Philly Fed, Consumer Sentiment, Productivity and Import Prices will round out the schedule.

Caroline's Weekly Market Review

This past week was packed with major economic reports and a Fed meeting. With investors looking for hints about when the Fed will begin to taper its bond purchases, the data caused a great deal of volatility. Because the economic news was roughly neutral overall, though, mortgage rates ended the week just slightly higher.

The economic data released on Wednesday, Thursday, and Friday caused large swings in mortgage rates. Positive news on economic growth was bad for mortgage rates and vice versa. Second quarter GDP increased 1.7%, above the consensus of 1.1%, and mortgage rates jumped. Then, ISM Manufacturing unexpectedly increased to the highest level since June 2011, pushing mortgage rates even higher. When Friday's highly anticipated Employment data was a little weaker than expected, though, mortgage rates reversed nearly the entire increase seen earlier in the week.

The reaction to these reports was exaggerated. A big reason for the volatility is that the Fed has indicated that future policy changes will depend on the performance of the economy. Investors had hoped that the Fed would provide more concrete guidance this week on its plans to begin to taper, but Wednesday's Fed statement provided no additional clarity. The consensus view is still that the Fed will begin to scale back its bond purchases in September, unless economic growth weakens significantly. As long as a high level of uncertainty remains about when the Fed will taper, volatility is likely to stay elevated.

This coming week will be a light one for economic events. ISM Services will be released on Monday. The Trade Balance will come out on Tuesday. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. Speeches from Fed officials also will receive attention from investors next week.