Mortgage Market News for the week ended August 03, 2018
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While there was major economic data released this week and a Fed meeting, there were no significant surprises. Mortgage rates ended the week a little higher.
Friday's key Employment report came in pretty much right on target across the board. Against a consensus forecast of 190,000, the economy gained 157,000 jobs in July. However, upward revisions added 59,000 jobs to the results for prior months. The economy has gained an average of 215,000 jobs per month so far this year, exceeding even the strong pace of 184,000 seen over this period last year.
The unemployment rate decreased from 4.0% to 3.9%, matching expectations. Average hourly earnings, an indicator of wage growth, also matched expectations. They were 2.7% higher than a year ago, the same annual rate of increase as last month.
As expected, the Fed made no policy changes at Wednesday's meeting. The Fed's statement was very similar to the prior one from the June meeting. The most notable change in the statement was that Fed officials modestly upgraded their assessment of the pace of economic growth. In particular, the statement said that economic activity "has been rising at a strong rate," while the prior statement described it as "solid." In addition, Fed officials noted that household spending and business investment have "grown strongly." In June, they just said that it had "picked up." Investors expect that the Fed will raise the federal funds for the third time this year at the next meeting on September 26.
Looking ahead, the JOLTS report, which measures job openings and labor turnover rates, will be released on Wednesday. Fed officials value this data to help round out its view of the strength of the labor market. The Consumer Price Index (CPI) will come out on Friday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. In addition, Treasury auctions on Wednesday and Thursday could influence mortgage rates.
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Mortgage Market News for the week ended July 20, 2018
Strong Retail Sales
It was a relatively quiet week for mortgage rates. The major economic data was mixed, and mortgage rates ended a bit higher.
Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator of growth. Retail Sales unexpectedly turned negative for three months during the winter, causing investors to question the strength of the economy. Since then, however, sales have been very strong.
Monday's data showed a solid increase in June of 0.5% from May, and the May results were revised much higher to 1.3% from 0.8%, which was the largest monthly gain since September 2017. Given the strong retail sales data, along with other major reports, the Atlanta Fed's forecast for second quarter gross domestic product (GDP) is up to a whopping 4.5%, more than double the 2.0% growth seen in the first quarter.
The news from the housing sector was less encouraging. In June, housing starts fell 12% from May to the lowest level since September 2017. The decline was split roughly evenly between single-family and multi-family units. Single-family starts reached a 10-year high in November 2017, but they have fallen steadily since then. Despite a huge need for more inventory of homes in many regions, higher labor, land, and material costs are some of the reasons cited by homebuilders for the slowdown in new construction.
Looking ahead, Existing Home Sales will be released on Monday and New Home Sales on Wednesday. Durable Orders, an important indicator of economic activity, will come out on Thursday. The first reading for second quarter gross domestic product (GDP), the broadest measure of economic growth, will be released on Friday. In addition, a European Central Bank meeting on Thursday could influence U.S. mortgage rates.
Existing Home Sales
Mortgage Market News for the week ended February 17, 2017
Based on the economic news over the past week, it would not have been surprising to see a large increase in mortgage rates. With stronger than expected economic data nearly across the board, hawkish comments from the Fed, and a stock market rally, the first half of the week indeed was rough on rates. Once all the news was out, however, mortgage rates recovered their losses and ended the week with little change.
Most of the reports on economic activity released this week far exceeded expected levels. Excluding the volatile auto component, retail sales doubled the expected increase in January, and the December figures were revised higher as well. Consumer spending accounts for about 70% of economic output, and the retail sales data is a key indicator.
Housing starts in January also surpassed expectations. The biggest surprises, though, were two regional manufacturing indexes which beat the consensus by a wide margin, one of which reached the highest level since 1984. In addition to these reports, the CPI and PPI inflation data for January came in above the expected levels. Increasing economic activity and rising inflation are not good for mortgage rates.
Early in the week, Fed Chair Yellen delivered her semi-annual testimony to Congress. Her comments were viewed as more hawkish than expected. Yellen stressed that it would be "unwise" to wait too long to raise the federal funds rate. She also said that in coming months the Fed will consider when to begin to reduce the Fed's portfolio of mortgage-backed securities (MBS). On the plus side, she pointed out that the Fed will do so very gradually. However, demand for MBS from the Fed has helped push down mortgage rates in recent years. The possibility of reduced demand put upward pressure on mortgage rates.
Looking ahead, the minutes from the February 1 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets. Existing Home Sales will be released on Wednesday and New Home Sales will come out on Friday. Mortgage markets will be closed on Monday in observance of Presidents Day.
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