AM Market Update!

This week’s FOMC meeting has adjourned with no changes to key short-term interest rates, as expected. However, it did bring an announcement of the first reduction in the Fed’s current bond buying program. They announced that the current pace of $85 billion in monthly purchases of government and mortgage debt would be reduced by $10 billion starting next month. This move wasn’t exactly expected at this meeting, but didn’t surprise some traders and market analysts. It was bound to come sooner or later and it turns out sooner was today.

 

Also worth noting was an indication that the Fed may keep key short-term rates at current levels "well past the time" the U.S. unemployment rate falls to 6.5%. That was a benchmark that previously was expected to cause the Fed to start raising rates that would help prevent inflation from growing rapidly. It now appears that 6.5% may not be the trigger that will lead to incremental increases in key short-term interest rates. This is pretty relevant because the unemployment rate fell to 7.0% last month. Chairman Bernanke and friends are now predicting the unemployment rate to be between 6.3% and 6.6% at the end of next year, down from the previous estimate of 6.4% - 6.8%.

 

The initial knee-jerk reaction in the markets was for stocks and bonds to sell. However, they have since rebounded from their earlier lows. Stocks have made the biggest move with the Dow now up 237 points and the Nasdaq up 31 points. The bond market has not rebounded into positive territory but has erased the initial post-meeting move. It currently is down 9/32, which is close to where it was when we posted this morning’s commentary. I am sure many lenders either suspended or revised rates higher as the markets made their first move. However, we should now be close to this morning’s rates, meaning this afternoon’s events had nearly a net zero impact on mortgage rates.

 

We technically had three economic reports posted early this morning but they were all the same, just covering different months. The Commerce Department announced that September’s Housing Starts fell 2.0%, rose 1.8% in October and jumped 22.7% last month. The decline in September was a surprise and October’s increase wasn’t too far off from forecasts. November’s rise greatly exceeded expectations, indicating solid growth in the new home portion of the housing sector. Since September’s data is aged now and not nearly as relevant as last month’s starts, we should consider the news negative for the bond market and mortgage rates as it points towards economic strength.

 

Tomorrow has last week’s unemployment figures set for release at 8:30 AM ET and two monthly reports scheduled for 10:00 AM ET that we will be watching. The Labor Department is expected to announce that 333,000 new claims for unemployment benefits were filed last week. That would be a sizable decline from the previous week’s 368,000 initial claims, hinting at a strengthening employment sector. The higher the number of claims, the better the news it is for the bond and mortgage markets because rising claims is a sign of a weakening employment sector.

 

The second is November's Existing Home Sales figures from the National Association of Realtors, giving us a measurement of housing sector strength and mortgage credit demand at 10:00 AM ET. It is expected to show a decline in sales, indicating a slowing housing sector. A sizable decline in sales would be considered positive for bonds and mortgage rates because a softening housing market makes broader economic growth more difficult. But unless the actual readings vary greatly from forecasts, the results will probably have little or no impact on mortgage rates.

 

The Conference Board will also release their Leading Economic Indicators (LEI) for the month of November late tomorrow morning. This release attempts to measure or predict economic activity over the next three to six months. It is expected to show a 0.6% increase, meaning that it predicts economic growth over the next several months. This probably will not have much influence on bond prices or affect mortgage rates unless it shows a much stronger reading than the 0.6% rise that is forecasted. The weaker the reading, the better the news it is for bonds and mortgage pricing.

 

I am still suggesting to lock your rate due to the downward trend. For continuing information on mortgage interest rates and real estate in The woodlands please follow my BLOG. If you are looking to buy or sell a home in Houston, Conroe, Spring or The Woodlands area it is important to follow my BLOG as changes in the market could affect your selling and buying power.