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Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

ECB More Dovish

 
This week's movement in mortgage rates was mostly due to a more dovish investor outlook for the European Central Bank (ECB). The economic data caused little reaction. Mortgage rates ended the week lower.
 
For years, the ECB has had a program in place to purchase massive quantities of bonds. The most recent extension of the program consists of buying 60 billion euros per month through December. This added demand has helped push bond yields lower around the world, including U.S. mortgage rates. Investors have been speculating for months about when the ECB will begin to scale back (taper) its bond purchases. On June 27, ECB President Draghi surprised investors by indicating that the extension of the bond purchase program next year might be at reduced monthly levels, and global bond yields moved higher. Recently, however, comments from ECB officials have become more dovish, meaning that the ECB may be less eager to scale back its stimulus programs as soon as some investors had thought. At Thursday's ECB meeting, Draghi provided just the vague guidance that the discussion about tapering should take place "in the fall." The apparent lack of urgency to taper helped mortgage rates improve over the last two weeks, nearly back to the levels seen before the comments on June 27.
 
One of the few bright spots in the recent U.S. economic data came from the housing sector this week. Despite a lack of inventory in many markets, a disturbing trend had appeared to be developing, as housing starts had declined in March, April, and May. However, the report for June released on Wednesday suggested that the three months of declines merely reflected that the data is highly volatile over the short-term.
 

In June, single-family housing starts jumped 6% from May, and the results for May were revised higher as well. Single-family housing starts were 10% higher than a year ago. Similar gains were seen for building permits for single-family homes in June. They were 9% higher than a year ago. 

 
 
 
Looking ahead, the next Fed meeting will take place on Wednesday. No change in the federal funds rate is expected, but investors will be looking for guidance about future monetary policy. Before that, 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 GDP, the broadest measure of economic activity, will be released on Friday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Fed and Data Benefit Rates

 
Over the past week, comments from Fed officials and weaker than expected economic data were positive for mortgage rates. After rising for the last two weeks, mortgage rates ended this week lower.
 
Every six months, the head of the U.S. Fed testifies before Congress. In her testimony on Wednesday, nearly all of Fed Chair Janet Yellen's comments simply reiterated what had already been communicated by Fed officials. However, she did provide one new piece of information regarding future Fed policy which caused a significant reaction. Yellen said that the Fed would not have to raise the federal funds rate "all that much further" to reach a "neutral policy stance," which is the rate which neither helps nor hinders economic growth. The practical implication of a lower "neutral" rate is that the Fed would stop raising rates sooner than investors had previously expected. A potentially smaller number of future rate hikes was viewed as good news for mortgage rates. 
 

A shortfall in the retail sales and inflation data released on Friday also was positive for mortgage rates. Excluding the volatile auto component, retail sales in June declined for the second straight month, while the consensus was for a modest increase. This was the first period of back-to-back monthly declines since July and August of last year.

 
The inflation data also fell short of expectations. The core consumer price index (CPI), which excludes food and energy, remained well below the Fed's target level of 2.0%. Expectations for another rate hike by the Fed this year declined after the release of the retail sales and inflation data. 
 
 
 
Looking ahead, the biggest event for U.S. markets next week likely will be the European Central Bank meeting on Thursday. While ECB officials have already said that they will wait for the meeting on September 7 to announce their plans for the bond purchase program, any guidance at this meeting about future policy will affect markets around the world. It will be a light week for U.S. economic data. The NAHB housing sentiment index will be released on Tuesday. Housing Starts will come out on Wednesday. The Philadelphia Fed regional manufacturing index will be released on Friday. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Focus Remains on Europe

 
The prospect of tighter monetary policy from the European Central Bank (ECB) again was the main influence on U.S. mortgage rates this week. The U.S. economic data caused little reaction. Mortgage rates ended the week higher.
 
Similar to what the U.S. Fed did earlier in the decade, the ECB has been buying massive quantities of government bonds to help push yields lower and stimulate the European economy. This has been good for bonds around the world and has lowered U.S. mortgage rates. Last week, however, ECB President Draghi hinted that they might begin to scale back (taper) their bond purchases sooner than expected. The possibility of reduced demand from the ECB caused bond yields to rise. Then on Wednesday, the ECB released the minutes from the June 8 meeting, and this reinforced investor expectations for tighter monetary policy. Global bond yields rose further, including U.S. mortgage-backed securities, pushing mortgage rates higher.
 

Friday's release of the key Employment report from the Bureau of Labor Statistics revealed a familiar story. Job gains were impressive, but wage growth was not. Against a consensus forecast of 175,000, the economy added 222,000 jobs in June. In addition, upward revisions added 47,000 jobs to the results for prior months.

 
The economy has added an average of 194,000 jobs over the past three months, compared to a monthly average of 187,000 for all of 2016. The unemployment rate unexpectedly increased from 4.3% to 4.4%, but this was viewed as a sign of strength since it was mostly due to workers entering the labor force. Average hourly earnings, an indicator of wage growth, fell short of expectations and were just 2.5% higher than a year ago. The weakness in wage growth was good for mortgage rates and offset the negative effect of the solid job gains. As a result, there was little net change in mortgage rates after the release of the data. 
 
 
 
Looking ahead, Friday will be the big day next week with Retail Sales and CPI. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI), a widely followed monthly inflation report, looks at the price change for goods and services which are purchased by consumers. Before that, Fed Chair Yellen will be delivering her semi-annual testimony to Congress on Wednesday. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Fed Officials Debate Inflation

 
Comments from Fed officials caused some volatility this week but had little net effect. The economic data caused little reaction. Mortgage rates ended the week nearly unchanged, close to the best levels of the year.
 
Last week's weak inflation data had Fed officials talking this week. To the surprise of many, inflation has declined during each of the last few months. Fed officials seem divided on how to react. Some consider the recent decline transitory and want to continue monetary tightening. Others question this and want to slow things down. On Monday, New York Fed President Dudley said that he thinks rising wages will push inflation higher and that to slow the current pace of monetary tightening could do harm to the economy. On Tuesday, Chicago Fed President Evans said that the Fed "can afford" to wait "a little bit" to see if inflation moves higher. The debate caused some market volatility.
 
The existing-home sales data from the National Association of Realtors released on Wednesday revealed that a shortage of inventory continued to be an issue in May. Total inventory of existing homes available for sale was significantly lower than a year ago and was at just a 4.2-month supply. A 6-month supply is considered a nice balance between buyers and sellers. The low supply of inventory and robust buyer demand caused prices to rise and properties to be sold very quickly. The median existing-home price reached a record high in May, and it took just 27 days on average for properties to be sold. This was the shortest duration since tracking began in 2011. 
 

Even with a low level of inventory in many markets, existing-home sales in May rose a little from April to the third highest level over the past twelve months. Sales of new homes, which make up roughly 10% of the market, also climbed in May, and the median price of new homes rose to a record high as well.  

 
 
 
Looking ahead, Durable Orders, an important indicator of economic activity, will come out on Monday. Pending Home Sales will be released on Wednesday. The Core PCE price index, the inflation indicator favored by the Fed, will come out on Friday. In addition, there will be Treasury auctions on Monday, Tuesday, and Wednesday. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Rates Improve on Weak Data

 
Weaker than expected retail sales and inflation data was favorable for mortgage rates this week. However, the Fed meeting was viewed as negative and offset some of the improvement. Mortgage rates ended the week a little lower, near the best levels of the year.
 

 

After rising gradually last year, inflation has been on a downward path so far this year. Wednesday's release of the core consumer price index (CPI), which excludes food and energy, continued this trend. Core CPI in May was just 1.7% higher than a year ago, which was lower than the 1.9% year-over-year rate of increase in April. Lower levels of inflation are positive for mortgage rates.

 

 
Later in the day on Wednesday, the Fed disclosed the results from its meeting, and investors viewed the news as negative for mortgage rates. One reason was that in the statement Fed officials maintained the position that the decline in inflation seen in recent months is just temporary. Most Fed officials still expect that inflation will climb to their target level of 2.0% in the medium term. Some investors had thought that the Fed would place more weight on the recent decline in inflation and slow the pace of monetary policy tightening.
 
In addition, the Fed provided more details at this meeting about its plan to reduce its holdings of U.S. Treasuries and agency debt and mortgage-backed securities (MBS). Investors viewed the pace of the reduction as a little more aggressive than anticipated, which contributed to a small increase in mortgage rates. Fed Chair Yellen said she expects to begin shrinking the size of the Fed's balance sheet "relatively soon" and will do so by no longer reinvesting all the principle payments received. The reduction will start at $10 billion a month and grow to $50 billion a month over twelve months. Approximately 40% of the reduction will be in the holdings of MBS. 
 
 
 
Looking ahead, it will be a very light week for economic data. Existing Home Sales will be released on Wednesday and New Home Sales on Friday. Speeches by Fed officials also may influence mortgage rates next week. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

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