The US economic data released last week struggled to elicit a reaction in the market. Instead, investors focused on increased expectations for asset purchases by the European Central Bank (ECB). This news was favorable for US mortgage rates, which ended near the lowest levels of the year.
The ECB has a reputation for being tougher on inflation than the Fed, and monetary policy has been tighter in the euro zone than in the US. Recent comments suggest that the ECB is headed in the opposite direction, though. While an improving US economy has caused the Fed to wind down its bond purchase program, ECB officials have expressed growing support to implement an asset purchase program to counter weak euro zone economic growth. Investors have added European bonds to their portfolios ahead of this expected added demand from the ECB, pushing their yields lower. This has made global bond yields in other regions relatively more attractive, including US mortgage-backed securities (MBS). The extra demand for MBS has helped push down mortgage rates.
Recent data on the US housing market has been mixed. The Existing Home Sales report released last week showed nice improvement, while last week's New Home Sales data revealed a slight decline. The July Pending Home Sales report, which is a leading indicator of future activity, rose to 105.9, the highest level since September 2013. The National Association of Realtors (NAR), which issues the report, defines a reading of 100 as an "average level of contract activity".
Looking ahead, there was a summit on Saturday between EU officials and Ukrainian officials. This may lead to additional sanctions against Russia. In the US, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, ISM Manufacturing will be released on Tuesday. The ADP Employment Change will come out on Wednesday. Productivity and ISM Services will be released on Thursday. Mortgage markets will be closed on Monday in observance of Labor Day.
Tuesday, September 2, 2014
Monday, August 11, 2014
Caroline's Weekly Market Review
With a light slate of economic reports last week, the conflict in Ukraine had the greatest effect on mortgage rates. Shifting sentiment about the likelihood of escalation caused some market volatility during an otherwise quiet week. Mortgage rates ended the week a little lower.
On Tuesday, a Polish official suggested that Russia is massing troops on the border with Ukraine to prepare for an invasion. While there has been a lot of debate about the accuracy of this statement, just the suggestion was enough to worry investors. The concern centers around how the US and European nations would respond. Another round of sanctions would be expected. The level of uncertainty about the outcome of this conflict is very high.
Europe is still struggling to avoid another recession, and trade restrictions with Russia make this even more difficult. GDP growth in the euro zone has been just slightly positive for four quarters after several years of negative readings. Since slower global economic growth reduces future inflationary pressures, this has been favorable for mortgage rates.
The conflict in Ukraine will remain a primary focus this week. The biggest economic report will be Retail Sales on Wednesday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, which measures job openings and labor turnover rates, will come out 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 Friday, along with Industrial Production. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
On Tuesday, a Polish official suggested that Russia is massing troops on the border with Ukraine to prepare for an invasion. While there has been a lot of debate about the accuracy of this statement, just the suggestion was enough to worry investors. The concern centers around how the US and European nations would respond. Another round of sanctions would be expected. The level of uncertainty about the outcome of this conflict is very high.
Europe is still struggling to avoid another recession, and trade restrictions with Russia make this even more difficult. GDP growth in the euro zone has been just slightly positive for four quarters after several years of negative readings. Since slower global economic growth reduces future inflationary pressures, this has been favorable for mortgage rates.
The conflict in Ukraine will remain a primary focus this week. The biggest economic report will be Retail Sales on Wednesday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, which measures job openings and labor turnover rates, will come out 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 Friday, along with Industrial Production. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
Monday, August 4, 2014
Caroline's Weekly Market Review
In a packed week, the two big economic reports were the main drivers of mortgage rates. The outperformance of the GDP data relative to expectations outweighed the small miss in the Employment report, causing mortgage rates to end the week a little higher. Last week's Fed meeting contained no surprises and had little impact.
Investors expected that the economy had bounced back during the second quarter from weather related weakness in the first quarter, but they were still caught by surprise by the strength of Wednesday's GDP report. The first reading for second quarter GDP, the broadest measure of economic growth, showed an increase of 4.0%, far above the consensus of 3.0%. In addition, revisions to the first quarter results caused improvement from -2.9% to -2.1%. The second quarter recovery was seen in nearly every area, including the key components of Consumer Spending and Business Investment. The GDP report was great news for the economy, but faster growth raises future inflationary pressures, which is negative for mortgage rates.
Friday's Employment report also showed continued improvement, but it fell slightly short of investor expectations. Against a consensus forecast of 230K, the economy added 209K jobs in July. The Unemployment Rate increased from 6.1% to 6.2%. Average Hourly Earnings, a proxy for wage growth, came in below the consensus. Bottom line, the sixth straight month of job gains above 200K was also great news for the economy, but because investors had anticipated even stronger results, mortgage rated declined following the news.
The economic calendar will be very light this week. ISM Services and Factory Orders will be released on Tuesday. The Trade Balance and Productivity will come out later in the week. None of these reports are generally market movers. Investors likely will be more focused on events outside the US. The number of potential trouble spots around the world has increased. Growth fears in Europe, conflicts in Ukraine and the Middle East, banking troubles in Portugal, and a debt default in Argentina all could influence US mortgage rates.
Investors expected that the economy had bounced back during the second quarter from weather related weakness in the first quarter, but they were still caught by surprise by the strength of Wednesday's GDP report. The first reading for second quarter GDP, the broadest measure of economic growth, showed an increase of 4.0%, far above the consensus of 3.0%. In addition, revisions to the first quarter results caused improvement from -2.9% to -2.1%. The second quarter recovery was seen in nearly every area, including the key components of Consumer Spending and Business Investment. The GDP report was great news for the economy, but faster growth raises future inflationary pressures, which is negative for mortgage rates.
Friday's Employment report also showed continued improvement, but it fell slightly short of investor expectations. Against a consensus forecast of 230K, the economy added 209K jobs in July. The Unemployment Rate increased from 6.1% to 6.2%. Average Hourly Earnings, a proxy for wage growth, came in below the consensus. Bottom line, the sixth straight month of job gains above 200K was also great news for the economy, but because investors had anticipated even stronger results, mortgage rated declined following the news.
The economic calendar will be very light this week. ISM Services and Factory Orders will be released on Tuesday. The Trade Balance and Productivity will come out later in the week. None of these reports are generally market movers. Investors likely will be more focused on events outside the US. The number of potential trouble spots around the world has increased. Growth fears in Europe, conflicts in Ukraine and the Middle East, banking troubles in Portugal, and a debt default in Argentina all could influence US mortgage rates.
Monday, March 24, 2014
Caroline's Weekly Market Review
A short comment by Fed Chair Janet Yellen caught investors off guard on Wednesday, and the reaction was not good for mortgage rates. In addition, a reduction in tensions in Ukraine caused investors to return to riskier assets, hurting safer assets such as mortgage-backed securities (MBS). As a result, mortgage rates ended the week higher.
As widely expected, the Fed scaled back its bond purchases by $10 billion to $55 billion per month. According to Yellen, if the Fed's economic outlook does not change significantly, the bond purchases are expected to end in the fall of this year. Fed officials have long maintained that they expect that the fed funds rate, the Fed's primary tool for monetary stimulus, will remain near zero for a "considerable period" of time following the end of the Fed's bond purchases. The big surprise came during Yellen's first press conference as Fed Chair, when she defined the meaning of a "considerable period" as about six months. This would place the first fed funds rate hike in the spring of next year. Before Yellen's comments, the market consensus was for the first rate hike to take place near the end of next year. While mortgage rates are not directly tied to the fed funds rate, the economic strength implied by the expected timing of the first fed funds rate hike was unfavorable for bonds of all maturities.
The housing reports released last week revealed that conditions in February were little changed from January. February Existing Home Sales decreased slightly from January. Total inventory of existing homes available for sale rose 6% to a 5.2-month supply. February Housing Starts declined slightly, while Building Permits increased 8%. The March NAHB Housing Index showed that home builder confidence increased slightly. It is widely believed that housing activity over the last couple of months has been depressed by the unusually severe winter weather, which means the pent up demand could be a positive in coming months.
There is a wide range of economic data for investors to consider this week. The primary reports will be New Home Sales, Durable Orders, Pending Home Sales, and Core PCE inflation, the Fed's preferred inflation indicator. Personal Income, Consumer Sentiment, and Consumer Confidence will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Changes in the situation in Ukraine also could influence mortgage rates.
As widely expected, the Fed scaled back its bond purchases by $10 billion to $55 billion per month. According to Yellen, if the Fed's economic outlook does not change significantly, the bond purchases are expected to end in the fall of this year. Fed officials have long maintained that they expect that the fed funds rate, the Fed's primary tool for monetary stimulus, will remain near zero for a "considerable period" of time following the end of the Fed's bond purchases. The big surprise came during Yellen's first press conference as Fed Chair, when she defined the meaning of a "considerable period" as about six months. This would place the first fed funds rate hike in the spring of next year. Before Yellen's comments, the market consensus was for the first rate hike to take place near the end of next year. While mortgage rates are not directly tied to the fed funds rate, the economic strength implied by the expected timing of the first fed funds rate hike was unfavorable for bonds of all maturities.
The housing reports released last week revealed that conditions in February were little changed from January. February Existing Home Sales decreased slightly from January. Total inventory of existing homes available for sale rose 6% to a 5.2-month supply. February Housing Starts declined slightly, while Building Permits increased 8%. The March NAHB Housing Index showed that home builder confidence increased slightly. It is widely believed that housing activity over the last couple of months has been depressed by the unusually severe winter weather, which means the pent up demand could be a positive in coming months.
There is a wide range of economic data for investors to consider this week. The primary reports will be New Home Sales, Durable Orders, Pending Home Sales, and Core PCE inflation, the Fed's preferred inflation indicator. Personal Income, Consumer Sentiment, and Consumer Confidence will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. Changes in the situation in Ukraine also could influence mortgage rates.
Monday, March 17, 2014
Caroline's Weekly Market Review
Tensions in Ukraine flared up again last week, causing investors to shift assets from stocks to the relative safety of bonds. Weaker than expected economic data in China also favored bonds over stocks, while the US economic data was roughly neutral. As a result, mortgage rates ended the week lower.
The most significant US economic report released last week, Retail Sales, contained some good news and some bad news. On the positive side, the results for February were stronger than expected. Unfortunately, the figures for January were revised lower. Overall, this left the data over the two-month period a little weaker than expected. Given the offsetting effects of the solid headline number and the downward revisions, combined with weather related distortions, the report caused no change in the economic outlook and had little impact on mortgage rates.
There was a lot of talk in the mortgage industry last week about a proposal out of the Senate Banking Committee that would replace Fannie Mae and Freddie Mac. Together Fannie and Freddie purchase or insure the majority of fixed-rate mortgages, so any changes to their structure would have enormous implications for mortgage lending. In the proposal, a new government entity would take over many of the functions of Fannie and Freddie, while some of the default risk would be shifted to private insurers. Both political parties support a reduction in the risk to taxpayers, but beyond that opinions vary widely about the appropriate role of government in the housing market. As a result, this proposal is viewed as a starting point for a long political debate, and the implementation of major reform of Fannie and Freddie is projected by most experts to be many years away.
In the US, the next Fed meeting will take place on Wednesday. Investors expect the Fed to proceed with another cut in its bond purchase program. Industrial Production will be released on Monday. Core CPI inflation and Housing Starts will come out on Tuesday. Existing Home Sales and Philly Fed will be released on Thursday.
The most significant US economic report released last week, Retail Sales, contained some good news and some bad news. On the positive side, the results for February were stronger than expected. Unfortunately, the figures for January were revised lower. Overall, this left the data over the two-month period a little weaker than expected. Given the offsetting effects of the solid headline number and the downward revisions, combined with weather related distortions, the report caused no change in the economic outlook and had little impact on mortgage rates.
There was a lot of talk in the mortgage industry last week about a proposal out of the Senate Banking Committee that would replace Fannie Mae and Freddie Mac. Together Fannie and Freddie purchase or insure the majority of fixed-rate mortgages, so any changes to their structure would have enormous implications for mortgage lending. In the proposal, a new government entity would take over many of the functions of Fannie and Freddie, while some of the default risk would be shifted to private insurers. Both political parties support a reduction in the risk to taxpayers, but beyond that opinions vary widely about the appropriate role of government in the housing market. As a result, this proposal is viewed as a starting point for a long political debate, and the implementation of major reform of Fannie and Freddie is projected by most experts to be many years away.
In the US, the next Fed meeting will take place on Wednesday. Investors expect the Fed to proceed with another cut in its bond purchase program. Industrial Production will be released on Monday. Core CPI inflation and Housing Starts will come out on Tuesday. Existing Home Sales and Philly Fed will be released on Thursday.
Tuesday, February 11, 2014
Caroline's Weekly Market Review
Caroline's Weekly Market Review
Last week's key economic data showed that the performance of the economy in January was weaker than expected. The shortfalls caused stocks to decline and mortgage rates to improve, but the impact was surprisingly small.
Both the Employment report and the ISM Manufacturing data saw big misses. Against a consensus forecast of 185K, the economy added just 113K jobs in January. Also disappointing, many investors had hoped to see a large upward revision to the weak December reading, but it was little changed. The ISM national manufacturing index declined sharply to 51.3, far below the consensus of 56.0. For perspective, the increase in jobs reflects improvement in the labor market, and readings above 50.0 indicate an expansion in the manufacturing sector. The issue is that the pace of economic growth has slowed.
The relatively minor impact of this week's data must be considered in light of the performance of the stock and mortgage markets so far this year. Entering the week, stocks had experienced significant losses, as the Dow was down roughly 5% in January. Similarly, mortgage rates have seen significant improvement since the start of the year. To some degree, investors were already positioned for weak data this week. In addition, questions about the effect of unusually severe weather caused some investors to question how accurately recent data reflects the underlying strength of the economy.
This week, Janet Yellen, the new Fed chair, will testify before Congress on Tuesday and Thursday, and her comments could influence mortgage rates. The most significant economic report will be the Retail Sales data on Thursday. Retail Sales account for about 70% of economic activity. Before that, the JOLTS report, measuring job openings and labor turnover, will come out on Tuesday. Industrial Production, Import Prices, and Consumer Sentiment will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday.
Thursday, February 6, 2014
Can I use my tax refund towards a down payment on a home?
It is tax refund time. Many people ask us if tax refunds can be used to pay for a mortgage down payment or closing costs.
All a borrower needs to do to document the tax refund is to provide a copy of the refund check and a bank statement showing that the refund has been deposited into their account. If the refund was automatically deposited into their account, they won’t have a copy of the check, but the notation on their bank statement will show that it is a tax refund. In the case of automatic deposits, the only documentation necessary is the bank statement.
The money does NOT have to be “seasoned”, meaning it has been in their account for 60 days. As soon as the refund has been deposited, it can be used to pay the down payment or closing costs. Some lenders may want to verify tax transcripts with the IRS before the funds can be counted.
So if you are thinking of buying or selling a home,
Call Caroline S. Farmer, 803-707-9997
Kwest Mortgage Group/Independent Mortgage Professional
The answer is YES!
All a borrower needs to do to document the tax refund is to provide a copy of the refund check and a bank statement showing that the refund has been deposited into their account. If the refund was automatically deposited into their account, they won’t have a copy of the check, but the notation on their bank statement will show that it is a tax refund. In the case of automatic deposits, the only documentation necessary is the bank statement.
The money does NOT have to be “seasoned”, meaning it has been in their account for 60 days. As soon as the refund has been deposited, it can be used to pay the down payment or closing costs. Some lenders may want to verify tax transcripts with the IRS before the funds can be counted.
So if you are thinking of buying or selling a home,
Call Caroline S. Farmer, 803-707-9997
Kwest Mortgage Group/Independent Mortgage Professional
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