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What’s Ahead For Mortgage Rates This Week : February 4, 2012

February 4, 2013 Leave a comment

Freddie Mac Mortgage RatesMortgage rates worsened last week amid evidence of an improving economy. Conforming mortgage rates climbed 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.

Breaking Down The Federal Reserve Statement (January 2013 Edition)

January 31, 2013 Leave a comment

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 improved slightly after the FOMC release.

What’s Ahead For Mortgage Rates This Week : December 17, 2012

December 17, 2012 Leave a comment

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 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.

Markets will respond to Fiscal Cliff discussions, too.

Categories: Mortgage Rates Tags: , ,

Simple Explanation Of The Federal Reserve Statement (December 12 , 2012)

December 12, 2012 Leave a comment

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 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.

Categories: Federal Reserve Tags: , ,

The Federal Reserve Begins A 2-Day Meeting Today

December 11, 2012 Leave a comment

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. 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.

Simple Explanation Of The Federal Reserve Statement (August 1 , 2012)

August 1, 2012 Leave a comment

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. The vote was nearly unanimous.

Only one FOMC member, Richmond Federal Reserve President Jeffrey Lacker, dissented 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 the U.S. economy has “decelerated somewhat” since January. Beyond the next few quarters, though, the Fed expects growth to “remain moderate” and then gradually pick up.

There was no mention of strain in global financial markets and its threat to the U.S. economy, as the Fed had made in its last two post-meeting press releases.

The Fed’s statement also included the following observations about the economy :

  1. Household spending is “rising at a somewhat slower pace”
  2. Inflation has declined, mostly on lower oil and gas prices
  3. Unemployment rates remain “elevated”

Furthermore, the Fed addressed the housing market, stating that, despite signs of improvement, the sector overall remains “depressed”.

The biggest news to come out of the FOMC meeting, though, was that there was no news.

First, the Federal Reserve is leaving its “Operation Twist” program in place. Operation Twist sells shorter-term securities off the Federal Reserve’s balance sheet, using the proceeds to purchase longer-term securities. This move puts “downward pressure on longer-term interest rates” and makes “broader financial conditions more accommodative.”

Second, the Fed re-iterated its pledged to keep the Fed Funds Rate at “exceptionally low” levels at least through late-2014.

And, third, to Wall Street’s surprise, there was no announcement of a third round of quantitative easing, a market stimulus plan by which the Federal Reserve buys U.S. treasuries and mortgage-backed bonds on the open market. QE3 would have likely led mortgage rates lower.

The FOMC’s next scheduled meeting is a two-day event slated for September 12-13, 2012.

Mortgage markets are rising post-FOMC.

Categories: Federal Reserve Tags: , ,

Planning Ahead For The Federal Reserve’s Next Move

Fed Funds Rate v 30-Year Fixed RateIn Washington, D.C. today, the Federal Open Market Committee (FOMC) begins a 2-day meeting, its fifth of 8 scheduled meetings this year.

Mortgage rates are expected to change upon the FOMC’s adjournment. Rate shoppers and home buyers would do well to be alert.

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

“Making monetary policy” has many meanings but the action for which the FOMC is most well-known is its setting of the Fed Funds Funds. The Fed Funds Rate is the prescribed interest rate at which banks borrow money from each other overnight.

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

The Fed Funds Rate and Freddie Mac’s 30-year fixed rate mortgage rate move along different paths. Sometimes, the two converge. Other times, they diverge. They’ve been separated by as much as 529 basis points in the past 12 years, and they’ve have been as near to each other as 52 basis points.

Clearly, there’s no correlation between the Fed’s Fed Funds Rate and the common 30-year mortgage. However, with its words, the Federal Reserve can influence the direction in which mortgage rates move — on occasion, by a lot.

We’ll be witness to this Wednesday.

When the FOMC adjourns, it is expected to announce no change in the Fed Funds Rate. Yet, based on the verbiage of the post-meeting statement, mortgage rates will rise or fall accordingly. If the Fed notes that the economy is sagging and that new stimulus is planned, mortgage rates are expected to drop. This is because new, Fed-led stimulus would be a boon for mortgage markets which would, in turn, drive mortgage rates down.

Conversely, if the Fed acknowledges growth in the U.S. economy and/or little need for new stimulus, mortgage rates are expected to rise.

Either way, expect rates to change — we just can’t know in what direction. The FOMC adjourns at 2:15 PM Wednesday.

Categories: Federal Reserve Tags: , ,
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