The market has opened this morning right where it left off last week. It continues to deteriorate. But, first let’s recap what happened last week. Looking at the graph to your right, the last 5 out of 6 trading days got worse for mortgage rates – note the “red escalator” on the far right of the chart. In addition, last week wasn’t kind to stock market investors as well.
Here is a review of the major events of the week:
Monday: The federal budget for July shows an increase in its deficit to -$98 billion, a deficit increase of $28 billion over June’s figure of -$70 billion. The good news is that the deficit for the first 10 months of the fiscal year is $38 billion less than during the same period of the prior fiscal year.
Thursday: Thursday was a busy day for economic news. The weekly jobless claims report came in lower than expected with 320,000 new jobless claims filed, the lowest level since 2007. This was lower than the expected.
While this is a strong sign for the economy that would typically boost stock prices, the markets fell. This is a good news/bad news scenario in describing what happened. The good news was that jobless claims fell to a new low, but the bad news is that investors feared that this may give the Fed a signal to begin tapering its quantitative easing (QE) program.
The Fed is expected to begin tapering its monthly purchases of $85 billion in treasury securities and mortgage-backed securities as early as next month. The QE purchases are intended to help hold down long-term interest rates including mortgage rates.
The fall in stock prices on Thursday and Friday suggested that fear of the Fed ending QE is more compelling than the lowest number of new jobless claims since October 2007.
Freddie Mac reported that the average rate for a 30-year fixed rate mortgage remained unchanged at 4.40 percent with 0.7 percent in discount points. The average rate for a 15-year fixed rate mortgage ticked up by one basis point from 3.43 to 3.44 percent.
Friday: Included Housing Starts for July, which came in at 896,000 as compared to expectations of 915,000 and June’s figure of 846,000 housing starts. Building permits issued in July came in at 943,000, and surpassed June’s reading of 918,000 building permits.
Increasing home values, buyer demand and a short supply of available homes were seen as motivating factors for builders to construct more homes.
Looking Ahead
The pressure to mortgage backed securities of last week, continue this morning. This week’s schedule of economic news is set to include the Chicago Fed’s National Activity Index on Tuesday. The FOMC minutes will be released on Wednesday along with Existing Home Sales. This FOMC minutes, could add to the volatility so keep your finger on the lock button.
Today, there is no real economic news to speak off that the MBS market pays attention to, and typically, when there is no economic news perse, the MBS market tends to get better or stay flat. Today, the opposite is happening – as of the writing of this blog, MBS is down over 50 basis points (meaning rates go up). This trend seems to affirm the ever growing sentiment that the FED will continue to taper (End of QE) in September.
This will be a busy week and will ultimately tell us a lot in terms of what direction the market will take in the short run leading up to the next big FED meeting September 18th.
We have been advising our clients to lock on any improvement in rates and stop gambling for better rates. Data is still pointing toward an improving economy, and thus rates should continue to rise. Take advantage of any blip of improvement.
- Closing in 7 days: LOCKING
- Closing in 7-15 days: LOCKING
- Closing in 15-30 days: LOCKING