MARKET COMMENT Mortgage bond prices fell last week pushing mortgage interest rates slightly higher. There were large swings throughout the week. Rates were pressured higher Tuesday following stronger than expected producer price index data. Retail sales showed a decline but not as bad as expected. Consumer prices rose higher than expected. The headline figure rose 0.2% and the core rate, which excludes volatile food and energy, rose 0.3%. Fortunately the Greek debt worries continued and some flight to quality buying of mortgage bonds ensued Thursday morning. Unfortunately mortgage bonds still ended the week worse by about 1/4 to 3/8 of a discount point.
The Fed meeting and the comments that follow will be very important this week. The beginning of the week is void of any significant data but the end of the week has some events that may result in mortgage interest rate volatility.
- Existing Home Sales; June 21; Consensus Estimate 5.04m; Low importance. An indication of mortgage credit demand. Significant weakness may lead to lower rates.
- Fed Meeting Adjourns; June 22; Consensus Estimate No rate change; Important. Few expect the Fed to raise rates, but some volatility may surround the adjournment of this meeting.
- Weekly Jobless Claims; June 23; Consensus Estimate 420k; Important. An indication of employment. Higher claims may result in lower rates.
- New Home Sales; June 23; Consensus Estimate 340k; Important. An indication of economic strength and credit demand. Weakness may lead to lower rates.
- 30Y TIPS Treasury Bond Auction; June 23; Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.
- Q1 Revised GDP; June 24; Consensus Estimate Up 1.8%; Very important. The aggregate measure of US economic production. Weakness may lead to lower rates.
- Durable Goods Orders; June 24; Consensus Estimate Down 0.9%; Important. An indication of the demand for “big ticket” items. Weakness may lead to lower rates.
FED MEETING The United States central bank, the Federal Reserve, coordinates the borrowing and lending activities of federally chartered banks. The principal reason the Federal Reserve was created was to reduce severe financial crises. One way of accomplishing this goal is to control the amount of money that flows through the economy. By manipulating the US money supply, the Fed influences inflation, unemployment, and the level of US economic activity. The Fed has a variety of tools that it uses to control the money supply, but its chief policy tool is the manipulation of short-term interest rates.
The Federal Reserve can adjust two distinct short-term interest rates. The discount rate is the interest rate which banks pay the Fed for primarily overnight loans. Despite its name, the Fed funds rate is the rate banks pay to borrow from other banks. The Federal Reserve has direct control over the level of short-term interest rates, the Fed’s influence over longer-term interest rates is less certain. All eyes will be focused on the Fed meeting Wednesday. Most analysts predict no rate change.
Keep in mind that a Fed rate change does not automatically mean mortgage interest rates will change. The Federal Reserve has direct control over the level of short-term interest rates. The Fed’s influence over longer-term interest rates is less certain. A cautious approach to float/lock decisions is prudent heading into the Fed meeting this week. Market volatility is likely.
Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee