Lake Tahoe Home Loans and Lake Tahoe Mortgage Rates:
Thursday’s bond market has opened up slightly following mixed economic news and a positive open in stocks. The major stock indexes are showing minor gains with the Dow up 45 points and the Nasdaq up 32 points during early trading. The bond market is currently up 4/32, but due to heavy selling late yesterday, we should still see an increase in this morning’s mortgage rates of approximately .250 of a discount point if comparing to Wednesday’s early pricing.
Yesterday’s afternoon release of the minutes from the last FOMC meeting did cause some volatility in the markets and mortgage rates even though they didn’t reveal anything significant that we didn’t already know. For the most part, they failed to give us something that would indicate the Fed would not ease back on their bond purchases (QE3) at their FOMC meeting next month, leaving traders to believe that it is likely to happen. There has been so much speculation and discussion on this topic that analysts and market participants are looking for anything that will make a clearer picture. And since nobody on the Fed will come right out and announce a definitive date, everyone is left to continue to speculate.
This is a highly important matter to the mortgage market because the Fed is currently buying $85 billion in mortgage securities and mortgage-related bonds each month. Once the Fed does begin to taper their purchases, there will be less liquidity in the market and it brings the complete ending of the program in sight. I believe the Fed wants to start that process soon, but I don’t have confidence in the economic growth that they are using as a basis to make that move. When it was said that they would start easing QE3 (without a set calendar date), it was based on speculative economic growth goals that have not clearly been met. It was my interpretation that further strength in the economy was needed over the summer months for the Fed to act and that just the current pace of growth from a couple months ago would not suffice.
The Fed has not come out and said the September meeting is when it will happen and we have seen some new concerns about the ability of the economy to strengthen on its own since this issue exploded in May and June. Therefore, I believe that unless we see overwhelmingly strong numbers in August’s economic data that will be posted early next month, a significant move in September would be premature and not likely. What could happen is that the Fed makes a very small token reduction that would not significantly impact its stimulus goals but would officially start the winding down process. They could then leave the slightly reduced rate of purchases in place for an extended period of time if needed. What all this speculation will do though, is magnify the importance and influence that the upcoming economic reports will have on the markets as traders grow increasingly desperate to predict what the Fed will do, or not do, at their FOMC meeting September 17-18. Hold on, as! it is going to be an interesting ride.
Today’s economic data failed to show any significant surprises. Both reports are considered to be only moderately important to the financial and mortgage markets and neither showed results that varied greatly from forecasts. The Labor Department announced early this morning that 336,000 new claims for unemployment benefits were filed last week compared to the 337,000 that was expected. Also, the Conference Board said their Leading Economic Indicators (LEI) for July rose 0.6%, slightly exceeding forecasts of a 0.5% rise. The initial claims number hints at a softening employment sector while the LEI is predicting a fairly decent rate of economic growth over the next couple months. The mixed results from data that is not considered highly important has had little impact on this morning’s mortgage rates.
Tomorrow has one piece of economic data that could affect bond trading and mortgage pricing. That would be July’s New Home Sales data from the Commerce Department at 10:00 AM ET tomorrow. This report is the sister release to yesterday Existing Home Sales report and will give us another indication of housing sector strength and mortgage credit demand. However, since it tracks only a small portion of all home sales, it usually doesn’t have much of an impact on bond prices or mortgage rates unless it varies greatly from forecasts. Current forecasts are calling for a minor decline in sales of newly constructed homes from June to July. An unexpected increase in sales would hint at sector strength, making the data negative for mortgage rates.