Jeff Cost

Cincinnati Home Loan

What’s Ahead For Mortgage Rates This Week : October 16, 2011

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Mortgage bonds suffered through another tough week last week as rising optimism that Eurozone leaders will “rescue” Greece plus stronger-than-expected economic data in the U.S. led bonds lower for the second straight week.

Conforming and FHA mortgage rates in OH moved sharply higher. After reaching an all-time low just two weeks ago, 30-year fixed mortgage rates are now at a 2-month high.

There were several big stories in the mortgage bond market last week. Each was bad for consumer mortgage rates.

The first big story was tied to Greece. As meetings continue between Eurozone leader and rhetoric heats up, it’s becoming increasingly clear that Greece will receive its next wave of debtor aid. The planned rescue of Greece is undoing the safe haven buying that characterized the mid-summer financial markets. 

With investors more willing to take risks, mortgage bonds are selling off, and rates are rising.

The next big story was the release of the Federal Reserve’s September meeting minutes. The central bank’s meeting recap showed that the Fed considered additional stimulus beyond its Operation Twist, even as inflationary pressures are increasing. Because inflation lowers the value of outstanding mortgage bonds, rates climbed post-release.

Lastly, last week we learned that the U.S. consumer will not be deterred. Retail Sales grew 1.1 percent in September — much more than Wall Street’s expectation. This, too, caused a mortgage bond sell-off and led to a late-Friday surge in rates.

Markets should open worse this morning, pressuring rates higher yet again. However, there’s plenty of data this week for which rate shoppers should be watching :

  • Tuesday : Producer Price Index; Housing Market Index
  • Wednesday : Consumer Price Index; Housing Starts
  • Thursday : Existing Home Sales

In addition, there are 8 Fed speakers this week. Each can move markets.

Despite rising rates, mortgage rates remain low nationwide. If you’ve been shopping for a rate, it’s not too late to lock in. Talk to your loan officer and make a plan to get locked, and get closed. 

Fed Minutes : A Fed Divided Reaches Comprise

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Fed Minutes

Wednesday, the Federal Reserve released the minutes from its 2-day meeting September 20-21, 2011.

The release shows a divided Fed in disagreement about the current U.S. monetary policy. The group reached compromise for new economic stimulus, however, and maintained its commitment to accommodative interest rates.

Wall Street reacted tepidly to the minutes. Mortgage rates in Cincinnati worsened slightly post-release.

The Fed Minutes gets less press than the FOMC’s post-meeting press release, but it’s every bit as important. Because it details the conversations that take place among voting and non-voting Fed members at FOMC meetings, the Fed Minutes is an inside-look at the debates and discussion that lead to new monetary policy.

As examples, here are some of the topics covered at the September FOMC meeting :

  • On growth : Economic growth was slow, but “did not suggest a contraction”
  • On housing : The market continues to be “depressed by weak demand”
  • On rates : The Fed Funds Rate will remain low until mid-2013

Then, with Fed members divided on whether the central bank should add new stimulus, it reached a compromise instead, launching the $400 billion “Operation Twist” program. Operation Twist is meant to lower longer-term interest rates, including mortgage rates.

Since Operation Twist began, mortgage rates are higher by nearly 0.375%.

Also noteworthy within the Fed Minutes was concern for an economic slowdown and how the Federal Reserve may react. According to the record, a slowdown may prompt the Fed to introduce its third round of qualitative easing, or QE3. An out-sized stimulus plan would likely lead rates higher.

Nothing will happen until the Fed’s next meeting, however. Chairman Ben Bernanke & Co meet next November 1-2 for a 2-day meeting..

Retail Sales Expected To Rise; Mortgage Rates Should Rise, Too

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Retail Sales 2008-2011

The American Consumer is alive and well, it seems.

Friday morning, the Census Bureau will release its Retail Sales figures for September. The report is expected to show an increase in gross receipts for the 15th straight month with analysts predicting a 0.6 percent increase from August.

The projected increase represents the largest jump in Retail Sales in six months and would likely lead mortgage rates higher for buyers in Louisville and   nationwide.

The connection between Retail Sales and mortgage rates is fairly straight-forward. Retail Sales are the majority component of “consumer spending” and consumer spending represents the majority of the U.S. economy — up to 70 percent, by some estimates.

And, as the economy goes, so go mortgage rates.

10 months ago, mortgage rates shot forward to start the year. This is because expectations were high for a strong economic rebound. Conforming and FHA rates crossed 5 percent at the time and were headed toward six.

By mid-April, though, it was clear that economic data was falling short of predictions. As a result, mortgage rates declined, kicking off the 2011 Refi Boom. Then, by August, on ongoing economic softness, mortgage rates in Ohio fell further, making new all-time lows.

Expectations for a recovery have returned. Rates are now rising.

Last week’s strong jobs report sparked hope for the U.S. economy and investors have been voting with their dollars. Mortgage rates are now up 7 consecutive days and Friday’s Retail Sales report could cement the trend.

If you’re shopping mortgage rates today, there’s risk in “floating”. You may want to lock your rate before Friday’s Retail Sales report drives rates even higher.

The Retail Sales report will be released at 8:30 AM ET.

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