Reposted from http://themortgagereports.com by Dan Green
This week’s FOMC meeting has adjourned with no change to key short-term interest rates or the Fed’s bond buying program. The lack of a change to interest rates was widely expected, but there was a lot of debate about the Fed maintaining their current stimulus programs. The news of no reduction in the Fed’s actions was welcomed news for bond traders, but actually has not had a significant impact on the markets.
The bond market has improved from this morning’s levels, which could lead to a slight improvement in this afternoon’s mortgage rates. However, it appears that the FOMC results are going to be a non-factor for the most part. The stock markets are still in negative territory with the Dow down 26 points and the Nasdaq down 6 points. The bond market is currently unchanged from yesterday’s close, which could lead to some lenders improving mortgage rates by approximately .125 of a discount point from this morning’s levels. If bonds continue to improve this afternoon, further downward revisions are possible, but I suspect many lenders will opt to wait until tomorrow’s open before making too much of an improvement.
This morning’s only relevant economic data was the initial release to the 4th Quarter Gross Domestic Product (GDP) reading by the Commerce Department at 8:30 AM ET. It revealed that the economy actuallycontracted 0.1% during the last three months of the year rather than expanded at a 1.0% annual pace that was expected. This was the first contraction in the GDP since the spring of 2009 and was a significant decline from the 3.1% rate of growth during the 3rd quarter. There isn’t much to say about the data other than the economy was much weaker as the year ended than anyone really thought. Some are blaming it on Fiscal Cliff worries while others have different theories, but the bottom-line is that nobody saw this coming and likely is a contributing factor to the Fed’s decision to not adjust their bond buying during this FOMC meeting.
Tomorrow morning has three pieces of economic data scheduled for release. The first is the least important of the three. The Labor Department will post last week’s unemployment figures early tomorrow morning. They are expected to announce that 345,000 new claims for unemployment benefits were filed last week, up from the previous week’s 330,000. That would be favorable news because rising claims indicates a weakening employment sector. However, it usually takes a wide variance from forecasts for this data to affect mortgage rates because it tracks only a single week’s worth of new claims.
The second is December’s Personal Income and Outlays data from the Commerce Department, also at 8:30 AM ET. This report gives us an indication of consumer ability to spend and current spending habits. It is important to the markets because it is related to consumer spending and consumer spending makes up over two-thirds of the U.S economy. Current forecasts call for an increase in income of 0.7% meaning consumers had more money to spend in December than they did on November. The spending reading is expected to rise 0.3%, indicating consumers spent a little more last month than the previous month. Larger increases would be good news for the stock markets and could hurt bond prices, driving mortgage rates higher. Smaller than expected increases would be considered good news for the bond market and mortgage rates.
The third release of the day will be the 4th Quarter Employment Cost Index (ECI). This index measures employer costs for employee wages and benefits, giving us an indication of the threat of wage inflation. If wages are rising, consumers have more money to spend and businesses usually need to charge more for their products and services. The report is considered moderately important and usually has more of an effect on the bond market than the stock markets. Current forecasts are showing an increase of 0.5%. A lower than expected reading would be favorable to bonds and mortgage rates, but unless we see a large variance from forecasts I am not expecting this report to cause much movement in rates.
If I were considering financing/refinancing a home, I would…. Lock if my closing was taking place within 7 days… Lock if my closing was taking place between 8 and 20 days… Lock if my closing was taking place between 21 and 60 days… Float if my closing was taking place over 60 days from now… This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.