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WEDNESDAY AFTERNOON UPDATE:
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...
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