12/23/2013 - This Week's Mortgage Forecast
LAST WEEK IN REVIEW
Ready. Set. Go. Last week the Fed announced that it will begin tapering its Bond purchase program by $10 billion per month. Read on to learn what this means.
Remember that the Fed has been purchasing $85 billion in Bonds and Treasuries each month to stimulate the economy and housing market. Moving forward, the Fed will now purchase $40 billion in Treasuries and $35 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based). The Fed's decision surprised the markets and caused Bonds and home loan rates to worsen on the news. In his speech after the Federal Open Market Committee meeting, outgoing Fed Chairman Ben Bernanke noted that the tapering process will continue to be dependent on economic data. This process could continue to have a big impact on Mortgage Bonds and home loan rates heading in 2014, and it will be an important story to monitor.
In other important news last week, the final reading on third quarter Gross Domestic Product rose to 4.1 percent. This was above expectations and was also the highest level since the fourth quarter of 2011, which is a good sign for our economy.
Over in the housing market, Housing Starts for November soared by 22.7 percent from October to 1.09 million units annually. This was the largest percentage increase since January 1990 and the biggest rate in five years. Building Permits did decline by 3.1 percent but came in above expectations, while Existing Home Sales fell year-over-year in the month ended in November for the first time in 29 months. Overall, the housing market continues to see improvement, and this likely contributed to the Fed's decision to begin tapering its Bond purchases.
FORECAST FOR THE WEEK
The holiday-shortened week will see just a few economic reports.
Ready. Set. Go. Last week the Fed announced that it will begin tapering its Bond purchase program by $10 billion per month. Read on to learn what this means.
Remember that the Fed has been purchasing $85 billion in Bonds and Treasuries each month to stimulate the economy and housing market. Moving forward, the Fed will now purchase $40 billion in Treasuries and $35 billion in Mortgage Bonds (the type of Bonds on which home loan rates are based). The Fed's decision surprised the markets and caused Bonds and home loan rates to worsen on the news. In his speech after the Federal Open Market Committee meeting, outgoing Fed Chairman Ben Bernanke noted that the tapering process will continue to be dependent on economic data. This process could continue to have a big impact on Mortgage Bonds and home loan rates heading in 2014, and it will be an important story to monitor.
In other important news last week, the final reading on third quarter Gross Domestic Product rose to 4.1 percent. This was above expectations and was also the highest level since the fourth quarter of 2011, which is a good sign for our economy.
Over in the housing market, Housing Starts for November soared by 22.7 percent from October to 1.09 million units annually. This was the largest percentage increase since January 1990 and the biggest rate in five years. Building Permits did decline by 3.1 percent but came in above expectations, while Existing Home Sales fell year-over-year in the month ended in November for the first time in 29 months. Overall, the housing market continues to see improvement, and this likely contributed to the Fed's decision to begin tapering its Bond purchases.
FORECAST FOR THE WEEK
The holiday-shortened week will see just a few economic reports.
- On Monday, Personal Income and Spending will be released along with the inflation-reading Personal Consumption Expenditure data. Consumer Sentiment will also be reported.
- On Tuesday, Durable Goods Orders and New Home Sales will be delivered.
- As usual, Thursday brings Weekly Initial Jobless Claims and comes after last week's big spike in claims to 379,000, which was the highest level since March.
The Bond markets will close early on Tuesday, Christmas Eve, at 2:00 p.m. ET, with Stock markets closing at 1:00 p.m. ET. All markets will be closed on Wednesday in observance of Christmas.
Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.
When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.
To go one step further — a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.
As you can see in the chart below, Mortgage Bonds worsened after the Fed announced that it will begin tapering its Bond purchase program. However, home loan rates remain at attractive levels and I will continue to monitor this closely.
Chart: Fannie Mae 4.0% Mortgage Bond (Friday Dec 20, 2013)
Economic Calendar for the
Week of December 23 - December 27
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