In one of the more volatile weeks in memory, mortgages managed to make strong gains. Benchmark 30 year fixed rates even made a run at the sub 4% mark mid-week, but drifted back to 4% or slightly above by the end of the week as stocks managed to close out the week by rising for two straight days (rising stocks generally – but don’t always – push rates higher.)
Why all this activity, and improvement, in the mortgage market?
First, underlying, persistent weakness in the US economy, coupled with Eurozone debt problems had investors seeking safety. As a result, money (lots of it) shifted into US Bond markets, which forced bond prices higher and yields (or rates) lower.
Second, the Federal Reserve on Tuesday announced that it would keep rates at exceptionally low levels until mid 2013. Previously, the Fed said they would keep rates low for an “extended period” normally taken to mean 3-6 months.
It is hard to overstate how unusual it is for the Fed to telegraph interest rate policy this explicitly. It amounts to the Fed stating that they see little prospect for a robust, self-sustaining period of economic expansion (and the jobs and inflation that would accompany it) until at least 2013. Needless to say this did not inspire confidence, and markets shifted significantly in the direction of lower rates as a result.
Lastly, don’t confuse the rates the Fed sets with mortgage rates. MUST READ: The Fed Does Not Set Mortgage Rates
News on a number of fronts (housing, inflation, manufacturing) and the potential for more eurozone hobogoblins might mean more volatility.
With a lackluster report from the Empire State Index this morning (3 months of contraction) the week started started out on a rate friendly footing. Which was quickly erased by a stock market that rallied to an “up” close for the third straight day. As a result, mortgages ended the day slightly more expensive than they started.
On Tuesday, housing starts and industrial production headline. Nobody expects much out of starts, which will remain at late 60′s (1960′s – the decade) levels. Industrial production is expected to improve, perhaps by a lot, according to some analysts. If that plays out, it would be taken as a positive development for the economy mortgage rates could rise.
Wednesday, we get a glimpse of prices at the wholesale level – rising prices are inflationary, and usually put upward pressure on rates. There’s no clear consensus here – estimates all over the map, so it is a wait and see event.
Thursday, the Consumer Prices Index provides another inflation snapshot Nothing noteworthy expected here – though a surprise can roil markets so the number bears watching. recall: Inflation (rising prices) = generally higher mortgage rates.
Also on the docket Thursday, which rounds out the rest of the economic calendar proper:
- The Philly Fed Survey, a broad based measure of manufacturing sector activity. We have seen some ugly numbers here recently – more of the same might help rates.
- Jobless Claims, still hovering around 405K as a weekly average, which is no great shakes, but the trend has been improving, so if this continues, we could see rates under upward pressure.
Remember, positive economic news tends to push rates up, while negative news helps rates fall.
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