Weekly Mortgage Market Update

Consistent Fed Message

 

Following the roller coaster ride last week, this was one of the quietest weeks for mortgage rates in a very long time. While last week contained a Fed meeting, Employment report, and GDP data, there was very little significant economic news this week, and mortgage rates barely changed.

 

In addition to a lack of major economic data, another reason for the limited volatility this week was that the message conveyed from the Fed was very consistent. The largest influence on mortgage rates in recent months has been shifting expectations for future Fed policy. According to the Fed officials that spoke this week, the Fed expects to begin to taper its bond buying program later this year. The exact timing will depend on future economic data. Investors currently expect that the tapering will begin in September or October. This means that the reaction to major economic data likely will continue to be exaggerated, as we saw on several occasions last week.

 

This week President Obama laid out his plan for restructuring Fannie Mae and Freddie Mac. It is very similar to what is being proposed in the Senate, so there were no big surprises. The primary component of the plan is to shift credit risk on mortgages from the government to the private sector. There was no timetable provided, but any changes are expected to take years. The announcement created a lot of headlines, but did not have an immediate impact on mortgage rates and is not likely to affect rates anytime soon.

 

 

• The Trade Deficit declined to the lowest level since October 2009 • ISM Services rose to the highest level since February  • Job openings in June reached the highest level in five years  • Auction demand for 10-yr and 30-yr Treasuries was below average

 

 

The most significant economic data next week will be the Retail Sales data and the monthly inflation reports. Retail Sales account for about 70% of economic activity and will be released 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 Wednesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Thursday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production will come out on Thursday, and Housing Starts will be released on Friday. Empire State, Philly Fed, Consumer Sentiment, Productivity and Import Prices will round out the schedule.