Mortgage Rates Hold Steady

There were few surprises in the economic data released this week, and the record $109 billion in Treasury auctions went smoothly. As a result, it was a quiet week for mortgage markets. This week's economic data showed signs that the economy is gradually improving, while inflation is not a concern right now. Demand remained solid for the Treasury auctions. Mortgage rates ended the week nearly unchanged.  Last week, the Fed increased its weekly mortgage-backed securities (MBS) purchases to about $25 billion, and it maintained that level this week. Prior to that, the Fed had purchased roughly $20 billion per week for a couple of months. The current pace would lead to total purchases of the authorized $1.25 trillion by the end of the year, which is when the program is scheduled to expire. Mortgage rates are largely determined by MBS prices, and the added demand from the Fed has helped to keep mortgage rates low. In a speech this week, the Fed's Lacker suggested that with the economy improving the Fed may not need to purchase the entire $1.25 trillion of MBS. Lacker's comments caused little reaction, as his views are often contrary to those of the other Fed officials, but if that were to happen, then mortgage rates would almost certainly move higher. Mortgage investors will be closely watching the Fed's plans for this program. The housing data released this week was again positive. July New Home Sales rose 10% from June to the highest level since September. Inventories dropped to a 7.5-month supply, which was the lowest level since April 2007. This data follows a similar rise in July Existing Home Sales announced last week.

Also Notable

• The Core PCE price index showed that inflation rose at a tame 1.4% annual rate
• Foreign buyers purchased a strong 61% of the 7-yr Treasury auction
• Bernanke will be reappointed for a second term as Fed Chairman
• The Fed purchased $25 billion in agency MBS during the week ending 8/26

Average 30 yr fixed rate:
Last week: -0.05%
This week: -0.02%
Stocks (weekly):
Dow: 9,600 +100
NASDAQ: 2,040 +40

Week Ahead

Next week, the important Employment report will come out on Friday. As usual, this data on the number of jobs, the Unemployment Rate, and wage inflation will be the most highly anticipated economic data of the month. Early estimates are for a loss of about 225K jobs in August. Before the Employment data, the Chicago PMI national manufacturing index will come out on Monday. Pending Home Sales, a leading indicator for the housing market, will be released on Tuesday, along with the ISM index and Construction Spending. The FOMC minutes from the August 12 Fed meeting will come out on Wednesday. Productivity, ISM Services, and Factory Orders will round out the schedule. Also notable, the Treasury will announce the size of upcoming Treasury auctions on Thursday.

Mortgage Time courtesy of MBSQuoteline.com

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