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"Unusually Uncertain"
Mortgage rates moved even lower during the week, as uncertainty about the pace of the economic recovery has increased investor demand for relatively safer assets such as government guaranteed mortgage-backed securities (MBS). The Fed Chairman acknowledged during the week that the economic outlook is even more difficult than usual to predict right now. Uncertain economic growth with low inflation is a favorable environment for mortgage rates. In his semi-annual testimony to Congress, Fed Chief Bernanke described the economic outlook as "unusually uncertain". According to Bernanke, this is the worst labor market since the Great Depression, and it is recovering more slowly than expected. Still, the Fed forecasts modest economic growth in 2010 with low inflation. Important for mortgage rates, Bernanke expressed reluctance to provide further monetary stimulus, unless the economy falters badly. He suggested that the upside of additional Fed actions may be limited, while the downside is that it would raise future inflation expectations. In the housing sector, June Existing Home Sales declined 5% from strong May levels to an annual rate of 5.37M units, which was well above the consensus forecast of 5.10M. Existing sales were 10% higher than one year ago. First-time buyers accounted for 43% of existing home sales in June. Existing home sales have been helped in recent months by the homebuyer tax credit. Even with the end of the tax credit, though, the National Association of Realtors (NAR) expects annual existing home sales to increase in 2010 and to rise further in 2011. Also Notable - June Housing Starts fell 5% from May, while Building Permits rose 2%
- The Labor Dept. reported that that unemployment rate fell in 39 states in June
- The Treasury will auction $104B in 2-yr, 5-yr, and 7-yr securities next week
- Lawmakers passed a bill to restore extended unemployment benefits
Average 30 yr fixed rate:
Last week: -0.05%
This week: -0.02%
Stocks (weekly):
Dow: 10,300 +100
NASDAQ: 2,250 +25
Week Ahead The most important economic report next week will be Friday's release of Gross Domestic Product (GDP) for the second quarter. GDP is the broadest measure of economic activity. Before that, New Home Sales will come out on Monday. Durable Orders, another important indicator of economic activity, will be released on Wednesday, along with the Fed's Beige Book. The Chicago PMI national manufacturing index will come out on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. There will be Treasury auctions on Tuesday, Wednesday, and Thursday. To learn more about news impacting interest rates and mortgage markets, go to www.mbsquoteline.com
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