What’s Ahead For Mortgage Rates This Week : March 5, 2012

Mortgage markets worsened last week as the U.S. economy continued to show that it’s in recovery, and as Federal Reserve Chairman Ben Bernanke publicly hinted at the same.

In a congressional testimony Wednesday, Chairman Bernanke suggested that new, Fed-led stimulus may not be imminent, surprising Wall Street analysts and market traders who, for months, have expected a third round of quantitative easing from the Fed.

Bernanke’s comments sparked a sharp bond market sell-off that briefly pushed conforming and FHA mortgage rates up 0.375% in Arizona.

Other relevant data from last week included :

• Core inflation rising 1.9% from last year, below the Fed’s 2.0% target
• Consumer confidence climbing to a 12-month high
• Initial jobless claims falling to a 47-month low

Also, the Pending Home Sales Index posted its highest reading since the end of the 2010 federal home buyer tax credit, suggesting a strong spring housing market.

The economy appears much improved over this time last year.

By the end of the week, mortgage rates had recovered somewhat, but still closed worse on the week. Mortgage rates are higher than their lows of the year.

According to Freddie Mac’s weekly mortgage rate survey, the average 30-year fixed rate mortgage is now 3.90% nationwide with an accompanying 0.8 discount points and a full set of closing costs. Borrowers in Phoenix wishing to pay no points, or fewer fees, should expect higher rates than the Freddie Mac average.

The average 15-year mortgage rate is 3.17% with 0.8 discount points and closing costs.

This week, mortgage rates should be volatile. There aren’t many new data points set for release, but the ones on the calendar are bona fide market-movers — especially Friday’s Non-Farm Payrolls Report.

More commonly called the “jobs report”, Non-Farm Payrolls data is closely watched because of the jobs market’s close ties to the health of the economy. Businesses have added jobs through 16 straight months and are expected to show another 210,000 added in February. If the actual number of net new jobs added exceeds 210,000, expect for mortgage rates to rise.

If the number falls short, watch for rates to fall.

A Simple Explanation Of The Federal Reserve Statement (January 25, 2012)

Wednesday, the Federal Reserve’s Federal Open Market Committee voted to leave the Fed Funds Rate unchanged within its current target range of 0.000-0.250 percent.

The Fed Funds Rate has been near zero percent since December 2008.

For the third consecutive month, the Fed Funds Rate vote was nearly unanimous. Just one FOMC member dissented in the 9-1 vote, objecting only to the language used in the Fed’s official statement.

In its press release, the Federal Reserve noted that the the U.S. economy has “expanding moderately” since its last meeting in December 2011, adding that the growth is occurring despite “slowing in global growth” — a reference to ongoing economic uncertainty within the Eurozone.

The Federal Reserve expects moderate economic expansion through the next few quarters but is wary of “strains” from global financial markets, and these three threats to the U.S. economy :  

1. The housing sector remains “depressed”
2. The unemployment rate remains “elevated”
3. Fixed business investment has “slowed”

On the positive side, the FOMC said that household spending is rising and inflation remains in-check. The group also believes that employment will gradually improve nationwide going forward.

The Federal Reserve neither introduced new economic stimulus, nor discontinued existing market programs.

Immediately following the FOMC’s statement, mortgage markets rallied, pressuring mortgage rates to fall. 

Mortgage rates remain near all-time lows and, for homeowners willing to pay points plus closing costs, conventional, 30-year fixed rate mortgages can be locked at below 4 percent. If you’re in the process of buying or refinancing a home in Arizona , it’s a good time to lock a mortgage rate with your lender.

The FOMC’s next scheduled meeting is a one-day event slated for March 13, 2012.

Fed Minutes Show An Improving U.S. Economy Threatened By The Eurozone

The Federal Reserve has released the minutes from its most recent Federal Open Market Committee meeting. The Fed Minutes are a detailed meeting recap; the companion piece to the more brief, more well-known press release.

As a comparison, the minutes of the last FOMC meeting contained 60 paragraphs and 7,027 words. The post-meeting press release was just 5 paragraphs and 382 words.

December’s Fed Minutes shows Fed members with a positive, cautious, take on the economy.

Recent data suggests that the U.S. economy is expanding, the Fed said, but “strains” in global financial markets pose “significant risks” to the downside. This tell us that the Fed believes its economy-stimulating programs are working, but that officials remained concerned by events in the Eurozone.

The U.S. economy could be impacted by fallout. 

Other meeting consensus included : 

• On growth : The economy is expanding, despite slowing in “global economic growth”
• On housing : Data suggests the “depressed” market “could be improving”
• On inflation : Prices are stable, and remain within tolerance levels

The Fed’s analysis was of little surprise to Wall Street, and going forward, Fed Chairman Ben Bernanke wants to keep it that way. The Fed Minutes contained a passage regarding market communication, and how the Fed will be more pro-active about it in the future. 

With the release of its minutes, in a section called “Market Policy Communications”, the Federal Reserve showed its plans to release 4 times annually its economic forecasts, and plans for the Fed Funds Rate. This signals in a shift in Federal Reserve transparency.

The Federal Reserve will begin including the forecast in its economic projections beginning after its next policy meeting, January 24-25, 2012.

Mortgage rates in California were little changed after the release of the Fed Minutes.