Federal Open Market Committee, Fed Chair: No Rush to Raise Rates

Wednesday's customary post-meeting statement issued by the Federal Open Market Committee (FOMC) of the Federal Reserve provided some relief to investors and analysts concerned that the Fed may soon raise its target federal funds rate. The target federal funds rate has held steady at between 0.00 and 0.25 percent since the inception of the Fed's current quantitative easing program. The FOMC statement indicated that the committee does not expect to raise the target federal funds rate until the Fed's dual mandate of maximum employment and reaching its target inflation rate is achieved.

FOMC members don't expect the wind-down of scheduled securities purchases under the quantitative easing program to cause long-term interest rates to rise quickly. The FOMC statement indicates that the Fed expects its current holdings and acquisitions of securities to hold down long-term interest rates and help with achieving the Fed's dual mandate of achieving maximum employment and 2.00 percent inflation. As in past meetings, the FOMC statement asserted the committee's dedication to reading and researching economic and financial reports and repeated that Fed policy is not contingent on a predetermined course, but that FOMC members make decisions based on current economic trends and developing domestic and global events.

FOMC members also re-asserted their position that after employment and inflation achieve levels consistent with the Fed's dual mandate, the Fed will likely maintain the target federal funds rate at lower levels than the committee considers normal for "some time."

Fed Chair Janet Yellen provided further insight into Fed policy during a press conference given after the FOMC statement. She also said that the FOMC's view of current economic conditions has not changed over the past few months. Chair Yellen also said that the committee expects to maintain the current target federal funds rate for a "considerable time" after asset purchases under the QE 3 program cease.

Fed Chair Yellen: Gaps Between Current Data and Fed's Mandate Shrink Modestly

In a press conference given after the FOMC policy statement was released, Fed Chair Janet Yellen emphasized that the committee's discussions did not imply any near-term changes to the target federal funds rate. Chair Yellen cited gaps between current unemployment rates and the Fed's mandate of achieving maximum employment and the current inflation rate and the Fed's target inflation rate of 2.00 percent as major considerations in forming current Fed policy. She said that the respective gaps had narrowed "modestly," and again emphasized the Fed's commitment to constant review of economic and financial data as a significant factor in its decisions to change monetary policy.

Ms. Yellen cautioned media representatives and analysts to avoid making economic projections too far into the future and pointed out that longer term predictions are subject to more variables. Chair Yellen also cautioned press conference attendees not to consider anything in the FOMC statement or her press conference to a definite time frame.

Media reps continued to press for definite dates and time projections, but Chair Yellen held fast to the Fed's often-repeated position that policy changes cannot be set by a calendar and also depend on economic trends and news that influence the Fed's monetary policies.

What's Ahead For Mortgage Rates This Week - Aug 11, 2014

Last week's housing related news was minimal, but a Federal Reserve survey of senior loan officers revealed that although credit standards for commercial and industrial loans as well as credit cards are easing, current mortgage credit standards are more stringent than in 2005. This could be a contributing factor to slowing housing market gains while other sectors of the economy are recovering at a faster pace.

Qualified Mortgage Rules Impact Non-Conforming Mortgages

The Senior Loan Officers survey also noted that qualified mortgage rules have slowed approval of prime jumbo mortgages and non-traditional home loans. This suggests that applicants falling outside of stringent qualified mortgage rules can expect challenges when buying or refinancing their homes.

In other housing news, Freddie Mac's Primary Mortgage Market Survey reported that last week's mortgage rates were mixed. Mortgage rates for a 30-year fixed rate mortgage averaged 4.14 percent with discount points of 0.70 percent against last week's reading of 4.12 percent with discount points of 0.60 percent. 15-year mortgage rates averaged 3.27 percent with discount points of 0.60 percent. This was an increase of four basis points, although discount points fell from 0.70 percent to 0.60 percent. The average rate for a 5/1 adjustable rate mortgage was 2.98 percent, a drop of two basis points, with discount points unchanged at 0.50 percent.

Fewer Jobless Claims, Service-Related Business Growth Exceeds Expectations 

The weekly Jobless Claims report brought a lower than expected reading of 289,000 new claims as compared to predictions of 305,000 new jobless claims. In other economic news, the Institute for Service Management (ISM) reported that its non-manufacturing index rose from June's reading of 56.00 percent to 58.70 percent in July. Analysts had forecasted July's reading at 56.50 percent. July's reading represented the highest growth rate for service-related businesses since 2005.

According to the Department of Commerce, June factory orders rose by 1.10 percent over May's reading of -0.60 percent against an expected reading of 0.60 percent. As business expands and factory orders increase, it's likely that jobs and hiring will also grow. Steady employment is a compelling factor for most home buyers and positive reports in labor and industrial sectors could boost housing markets as more buyers increase demand for homes.

What's Ahead

Next week's economic reports include retail sales, retail sales excluding automotive, industrial production and the weekly reports on mortgage rates and new jobless claims. While there isn't much housing news expected next week, readings in other economic sectors can suggest potential trends in housing markets

FOMC Minutes: Committee Discusses "Normalizing" Policy

April's meeting of the Fed's Federal Open Market Committee was held along with the Board of Governors of the Federal Reserve System.

Meeting minutes released Wednesday indicated the committee's interest in "normalizing" its monetary policy. This included the FOMC's ongoing commitment to tapering its asset purchases under its quantitative easing program.

The committee agreed to taper the Fed's monthly asset purchases by $10 billion to $45 billion per month. Committee members discussed raising the target federal funds rate, which now stands at 0.00 to 0.25 percent, but the minutes clearly stated that this topic was undertaken as part of "prudent planning, and did not indicate that normalization would necessarily begin sometime soon."

The FOMC minutes reflected the committee's concern with achieving a balance between normalizing the Fed's monetary policy and keeping short-term interest rates under control.

Meeting attendees considered methods for managing interest rates and considered potential impact of each method discussed on overall financial stability.

Importance Of Early Communication

Meeting participants discussed the importance of early communication of pending changes to the Fed's monetary policy, and agreed that advising the public "well before the first steps in normalizing policy become appropriate."

Early communication to the public of planned changes was viewed as a means of providing clarity and credibility to FOMC policy decisions and help FOMC achieve its statutory goals of maximum employment, stable pricing and moderate long term interest rates.

Potential Impact Of Achieving Normalcy

 FOMC members discussed the possible impact of tools considered for use in normalizing the economy on the following:

• Fed control over short-term interest rates
• The Fed's balance sheet and Treasury remittances
• Functionality of Federal Funds Market
• Financial stability in normal times and times of stress

The minutes noted that the Fed has never used any of the methods discussed while the Fed held a large balance sheet, and recommended that flexibility in using tools for achieving normal fiscal policy.

No decision was made about normalizing current monetary policy; FOMC and Fed Board members agreed that further study and analysis were needed before any decisions would be made.

Fed: Mortgage And Refinance Applications "Tepid"

The FOMC minutes characterized the level of mortgage and refinance applications through March as tepid, due to increasing mortgage rates and home prices.

While a survey of senior loan officers revealed that mortgage credit had been loosened for applicants with prime credit, mortgage credit remained tight for those with less than excellent credit.

The unemployment rate held steady at 6.70 percent and remained above the FOMC's benchmark of 6.50 percent. There was some good news as the workforce expanded and the ranks of the long-term unemployed decreased.

Stable employment is important to potential home buyers; if unemployment levels continue to fall, numbers of home buyers are likely to increase.

What's Ahead For Mortgage Rates This Week - May 27, 2014

Last week's economic news was dominated by speeches given by Federal Reserve presidents, the minutes from April's FOMC meeting and commencement address given by Fed Chair Janet Yellen. The latest readings for new and existing home sales were also released.

Federal Reserve Speeches Suggest Concerns Over Monetary Policy Dependence, Low Inflation

Here are highlights of comments made by each of the Fed presidents' speeches. Richard Fisher, president of the Dallas Fed, and John Williams, President of the San Francisco Fed, spoke at a conference held at the Bush Institute.

Mr. Fisher said that 98 percent of jobs lost during the recession had been recovered, and that other jobs had been added. He also cited "bad fiscal policies," and said he is worried about dependence on the Fed's monetary policy when "Congress and the Executive Branch have put on the brakes." 

John Williams, president of the San Francisco Fed, said that he was concerned about slowing momentum in housing markets, although he noted that housing had driven economic recovery in the aftermath of the recession.

The inflation rate has remained well below the Federal Reserve's target rate of 2.00 percent, and Mr. Williams said that the Fed is paying close attention to this. His remarks were supported in Wednesday's release of the FOMC minutes of its April meeting.

Charles Plosser, the Philadelphia Fed's president, took an optimistic tone at a speech given before the Women in Housing Foundation on Tuesday. He said that the national unemployment rate could fall below 6.00 percent by the end of 2014 and that he expects the housing market to bounce back as well.

This makes sense, as strong labor markets are known to influence consumer decisions to buy a home.

New York Fed President William Dudley spoke before the New York Association for Business Economics, and said that there would be "a considerable period of time" between when the current asset purchase program ends and the first Fed rate hike would occur.

He also indicated that he expected longer-term interest rates (which include mortgage rates) to be "well below" a historical average of 4.25 percent.

Minneapolis Fed President Narayana Kocherlakota said that the Fed should consider targeting price levels rather than the current policy of targeting the inflation rate. He said that this was not likely to occur any time soon, but noted that current Fed policy is "undershooting" the central bank's goals for unemployment and inflation.

Fed Chair Janet Yellen cited her predecessor, Ben Bernanke as a positive example when she spoke at New York University's commencement. She noted that he took "courageous actions unprecedented in ambition and scope" and that his "grit willingness to take a stand" had directed his decisions during the recession.

Mortgage Rates Down, Existing Home Sales Up

Freddie Mac reported that average mortgage rates dropped last week. The average rate for a 30-year fixed rate mortgage fell to 4.14 percent, a drop of six basis points. The rate for a 15-year fixed rate mortgage fell by four basis points to 3.25 percent.

The average rate for a 5/1 adjustable rate mortgage dropped by five basis points to 2.96 percent. Discounts were unchanged at 0.60 percent for 30-year mortgages and 0.40 for 5/1 adjustable rate mortgages, but dropped to 0.50 percent for 15-year mortgages.

Sales of existing homes rose to their highest level in four months according to the NAR. Month-to-month sales of previously-owned homes rose by 1.63 percent in April to a seasonally adjusted annual rate of 4.65 million sales as compared to March's reading of 4.59 million sales. This was the first rise in sales of existing homes in 2014, and nearly met expectations of 4.66 million sales.

This Week

After the Memorial Day holiday, this week's economic news includes the Case-Shiller Home Price Index, FHFA's house price index and consumer confidence index.

Pending home sales, jobless claims and Freddie Mac's mortgage rates report along with the University of Michigan consumer sentiment index round out the week's scheduled events.

What's Ahead For Mortgage Rates This Week - May 12, 2014

Results from a Federal Reserve survey of senior bank loan officers indicated that lenders have held the line on prime lending standards and have raised standards for sub-prime and non-traditional home loans.

Survey respondents represented 74 U.S. banks and 23 foreign banks. Survey respondents also said that demand for mortgage loans was lower; this could be an unintentional result of tight credit standards for mortgage loans.

Analysts said that tight credit requirements and less demand for home loans could mean more trouble for the housing industry.

Home Prices Rise In March, But At Slower Rate

The annual rate of increase for national home prices was 11.10 percent as compared to February's 11.80 percent year-over-year rate of increase.

February's reading was the fastest pace of home price growth in eight years, but March's slower level of home price appreciation was the lowest month-to-month reading in three years. Fewer affordable homes were cited as a reason for slower growth in housing markets.

CoreLogic reported that home prices rose by 1.40 percent in March, and that Arkansas was the only state that posted a drop in home prices. Several states, including North Dakota and Texas, achieved new peaks in home prices due to strong job growth.

The slow-down in home price growth isn't necessarily all bad news; analysts said that home prices could not continue to climb when household incomes aren't keeping up.

Many first-time buyers have been sidelined with a combination of slow job growth, higher home prices and tight mortgage credit. CoreLogic reported that these factors contributed to their forecast for home prices to grow by about 6.70 percent in 2015.

Mortgage Rates Fall, Fed Chair Speaks

Freddie Mac reported lower average mortgage rates on Thursday. The rate for a 30-year fixed rate mortgage was 4.21 percent as compared to last week's reading of 4.29 percent. Discount points dropped from 0.70 to 0.50 percent. The average rate for a 15-year mortgage was 3.32 percent and six basis points lower than the prior rate of 3.38 percent.

Discount points were unchanged at 0.60 percent. The rate for a 5/1 adjustable rate mortgage was unchanged at 3.05 percent, but discount points dropped from 0.50 to 0.40 percent.

Janet Yellin, chair of the Federal Reserve, spoke before the Senate Budget Committee on Thursday and said that the Fed can shrink its current balance sheet of $4.3 trillion by not reinvesting proceeds from its portfolio of maturing bonds.

This is directly connected to the Fed's tapering of its quantitative easing (QE) program, which is currently at a level of $45 billion per month in mortgage backed securities (MBS) and treasury securities.

Some analysts believe that members of the Fed's FOMC meeting discussed the end of QE in their last meeting, but this cannot be verified until the minutes of the meeting are released May 21.

The end of QE could cause higher mortgage rates as the program's purpose is to hold down long-term interest rates.

Weekly Jobless claims fell to a new low of 319,000 against predictions for 325,000 new jobless claims and 345,000 new claims for the prior week. Seasonal anomalies caused by the Easter holiday and spring break schedules were cited as causes for ups and downs in new jobless claims in recent weeks.

What's Next

This week's scheduled economic news includes several consumer-related reports including Retail sales, Consumer Price Index, core CPI, Homebuilder's Index, and Housing Starts.

Fed Minutes Predicts Tapering Of Quantitative Easing Program

Housing Starts exceeded expectations and also beat October's reading of 889,000. November housing starts were posted at 1.09 million against a consensus of 963,000.

This reading is more in line with the NAHB/Wells Fargo Home builder Market Index, which reached a four month high with December's reading.

With that threat resolved and a new federal budget passed, builders can now proceed without worrying about setbacks caused by government shutdowns and legislative gridlock.

Building permits issued in November were slightly lower at 1.01 million than October's reading of 1.04 million. Viewed as an indicator of future construction, and ultimately, available homes, it is not unusual for construction and permits to slow during the winter months.

FOMC Statement And Chairman Bernanke's Last Press Conference

Throughout 2013, strong signs of economic recovery have led to predictions of the Federal Reserve tapering its quantitative easing program.

As each FOMC meeting approached, analysts predicted that the Fed would start reducing its $85 billion purchases of Treasury and mortgage-backed securities.

The asset purchases are part of the government's quantitative easing program that was implemented to keep long-term interest rates and mortgage rates low.

The cut finally came on Wednesday as the FOMC made its customary post-meeting statement. Effective in January 2014, the Fed will reduce its monthly purchases by $10 billion.

The QE purchase will be split between $40 billion in Treasury securities and $35 billion in MBS. The Fed expects that the economy will continue recovering at a moderate pace.

The FOMC statement noted that the Fed will continue monitoring inflation, which remains below the Fed's target rate of 2.00 percent, and the national unemployment rate, which remains above the Fed's target rate of 6.50 percent.

The statement noted that asset purchases are not on a predetermined course, and that the Fed will continue to closely monitor labor market conditions, inflation pressure and economic developments in the U.S. and globally.

The Fed did not change its target federal funds rate of 0.00 to 0.25 percent, and would not do so at least until unemployment falls to 6.50 percent. Changes to policy accommodation are made with the Fed's dual goal of achieving an inflation rate of 2.00 percent and achieving maximum national employment goals.

Bernanke Press Conference

Mr. Bernanke repeated key points of the FOMC statement, and noted that "highly accommodative monetary policy and waning fiscal drag" is helping with the economic recovery, but that the economy has much farther to go before it can be considered fully recovered.

Mr. Bernanke said that FOMC members saw the unemployment rate dropping from 7.00 percent in November 2013 to 6.30 to 6.60 percent in the fourth quarter of 2014. Improving labor markets and rising household spending were cited as signs of economic recovery.

Mr. Bernanke mentioned concerns about the high unemployment and underemployment rates and said that the Fed's benchmarks for unemployment and inflation would not automatically trigger reductions in its QE asset purchases.

He also said that the committee did not expect to adjust the target federal funds rate immediately after the national unemployment rate reaches 6.50 percent. 

Mr. Bernanke repeated that the Fed's actions regarding monetary policy and QE would be dependent on in-depth review of ongoing financial and economic developments, but said that further tapering of QE purchases is likely if the economy stays on its present course of moderate improvement.

Fed Meeting Minutes Show Hope In Economic Growth

The minutes of the Federal Reserve's Federal Open Market Committee meeting held October 29 and 30 were released Wednesday. The meeting began with a report from the Manager of the System Open Market Account and included updates on developments within domestic and foreign financial markets.

According to the report, no intervention by the Federal Reserve was required on foreign currencies during the period between the last and current FOMC meetings.

FOMC: Key Data Delayed by Shutdown

The FOMC noted moderate economic growth in the period since its last meeting, but also noted that several federal agencies delayed release of key statistics due to the government shutdown in early October. The FOMC minutes included updates on several economic sectors including:

Labor: Private non-farm payrolls for September increased at a slower rate than for August and the unemployment rate remains high at 7.20 percent. The FOMC has set a target unemployment rate of 6.50 percent as a benchmark for considering changes to the Fed's quantitative easing program, which supports lower long-term interest rates and mortgage rates.

A high rate of part-time employment and a slight drop in full-time employment may indicate why would-be home buyers remain on the sidelines. FOMC members noted that while weekly unemployment claims rose during some weeks in October, this was likely fall-out related to the government shutdown.

Manufacturing: Production rose slightly, but was flat other than for motor vehicles. The committee expected to see gains in production in the near term.

Personal Consumption Expenditures: This sector rose in August and retail sales excluding autos were significantly higher in September. Factors impacting consumer spending were mixed. Homeowners enjoyed increasing home prices and home equity, but overall consumer sentiment declined even as disposable income increased in August.

Housing: The committee said that little current data was available for the housing sector due to the shutdown. Building permits and housing starts for single family homes rose in August. After a significant drop in July, sales of new homes rose in August while sales of existing homes fell. Pending home sales also fell during August and September.

Quantitative Easing: FOMC members decided not to alter its current QE program during its September meeting; this caused investors and analysts to revise their expectations for the Fed taking action to reduce its current pace of $85 billion in monthly bond purchases.

Expectations for the total amount of asset purchases under QE were revised upwardly, which suggested that no major changes in current Fed monetary policy is anticipated.

Overall, the minutes of October's FOMC meeting echoed the committee's recent perception of moderate economic growth as expressed during its 2013 meetings, and its intention to maintain asset purchases and the target federal funds rate at current levels in the coming months.

Fed Meeting Minutes Release Hope Of A Stronger Economy With New Measures

The Federal Reserve's Federal Open Market Committee released its customary after-meeting statement on Wednesday. In the context of meeting its dual mandate of stabilizing pricing and achieving maximum employment.

The FOMC statement indicated that although the economy has improved in areas including household spending and labor market conditions, the national unemployment rate remains high and the housing market recovery has slowed.

Fed Says Fiscal Policy Restraining Economic Growth

The FOMC statement said that current fiscal policy and "retrenchment" is restraining economic growth as evidenced by failure to achieve benchmarks set by FOMC as indicators of a healthy economy. Benchmarks include a national unemployment rate no higher than 6.50 percent and achieving an inflation rate of 2.00 percent.

September's unemployment rate was 7.20 percent and inflation has run consistently below the FOMC objective. Not to be confused with the FOMC statement's references to monetary policy, the term fiscal policy refers to the government's budgetary policy.

Committee Sees "Moderate" Economic Growth, Seeks Improvement

While the Fed cited "moderate economic growth," the FOMC statement clearly indicated that the committee is not ready to alter its current policy of quantitative easing and estimates that it will maintain the target federal funds rate at between 0.00 percent and 0.250 percent for a considerable time after the QE bond-buying program is phased out.  

The Federal Reserve currently purchases $40 billion per month in mortgage-backed securities and $45 billion in Treasury securities as part of its QE program. The Fed will also continue its existing policy of reinvesting principal payments it receives on holdings of agency debt and MBS, as well as selling maturing Treasury securities at auction.

These activities are part of FOMC's strategy for supporting low mortgage rates and mortgage markets while making "broader financial conditions more accommodative." The Fed expects these measures to assist with a stronger economic recovery and stabilizing inflation at the Fed's target rate.

Fed To Continue Monitoring Economic, Financial Developments 

FOMC reasserted its position that any decision to alter current QE policy is not solely subject to economic benchmarks, but will be based on the Committee's close review of labor market conditions, inflation pressures, and financial developments.

FOMC commented in its statement that it will continue to review economic and financial conditions in the "coming months" and will decide when to taper its monthly asset purchase according to what is learned.

This suggests that changes to the present QE policy are not anticipated for several months, and that the effects of QE combined with dampened speculation may help with keeping mortgage rates lower.

What's Ahead For Mortgage Rates This Week-September 30, 2013

Last week brought a variety of housing related news. Highlights included the S&P/Case-Shiller Home Price Index for July, which showed a 12.40 percent year-over-year increase in national home prices. This was up from 12.10 percent in June.

The FHFA Housing Price Index reading traces home prices on properties securing mortgages owned or backed by Fannie Mae and Freddie Mac. The year-over-year reading for July showed an increase of 8.80 percent as compared to a year-over-year reading of 7.80 percent in June.

Rising mortgage rates and rising home prices have caused some buyers to leave the market, while others are jumping in before mortgage rates move higher. Pent-up demand for homes and short supplies of homes for sale are expected to sustain buyer interest and home prices.

The Consumer Confidence Index for September fell to 79.70 percent for September as compared to August's reading of 81.80 percent, but was slightly higher than the expected reading of 79.50 percent.

Sales Of New Homes Surpass Expectactions

Sales of 421,000 new homes in August surpassed expectations of 420,000 sales and the revised number of 390,000 sales of new homes in July. A short supply of existing homes for sale is attracting buyers to new homes.

Freddie Mac's weekly Primary Mortgage Market Survey provided good news as average mortgage rates fell. The average rate for a 30-year fixed rate mortgage was 4.32 percent as compared to last week's 4.50 percent. 

The average rate for a 15-year fixed rate mortgage was 3.37 percent as compared to last week's reading of 3.54 percent. Discount points were unchanged at 0.70 percent.  The average rate for a 5/1 adjustable rate mortgage was 3.07 percent, which was four basis points lower than last week. Discount points were unchanged at 0.50 percent.

Pending home sales fell by 1.60 percent in August as compared to July; the National Association of REALTOR cites higher home prices and mortgage rates along with depleted supplies of available homes as reasons for fewer signed contracts in August.

The West reported a drop of 1.60 percent in pending sales and the Midwest reported 1.40 percent fewer pending sales in August. The Northeast came out ahead with 4.00 percent more pending home sales in August.

Weekly jobless claims were reported at 305,000 new jobless claims as compared to expectations of 327,000 new jobless claims and the prior week's reading of 310.000. The Federal Reserve recently cited the national unemployment rate of over seven percent as a clear indication that employment levels are not recovering quickly.

Next Week's Economic News

While few housing and mortgage related reports are set for release next week, the calendar should provide indications of overall economic conditions. On Tuesday, Construction Spending for August will be released. Wednesday brings the ADP employment report for September. This report tracks private sector jobs.

Thursday brings Freddie Mac's PMMS report of average mortgage rates and the weekly jobless claims report.

The federal Non-farm Payrolls and National Unemployment Reports for September are set for release on Friday.

What's Ahead For Mortgage Rates This Week - September 16, 2013

Last week didn't feature any housing-related news other than Freddie Mac's weekly survey of mortgage interest rates.

Reports on consumer credit, job openings and weekly jobless claims suggest that without some relief in the jobs market, Americans may be taking a "wait-and-see" stance toward buying homes.

Consumer Credit Rose By $10.40 Billion In July

The Federal Reserve reported Tuesday that revolving credit fell by an annual rate of 2.60 percent as compared to an annual decrease of 5.20 percent in June. Non-revolving consumer credit such as vehicle and education loans rose at an annual rate of 7.40 percent.

Freddie Mac's Primary Mortgage Market Survey indicated that mortgage rates were unchanged for both 30-year and 15-year fixed rate mortgage loans. The average rate for a 30-year FRM was 4.57 percent with discount points of 0.80 percent; this was higher than last week's 0.70 percent.

Average rates for a 15-year fixed rate mortgage were unchanged at 3.57 percent with 0.70 percent in discount points. The average rate for a 5/1 adjustable rate mortgage fell by six basis points from 3.28 to 3.22 percent with discount points unchanged at 0.50 percent.

Mortgage rates are likely to change next week in response to any announcement by the Federal Reserve regarding its plan for reducing the amount of monthly bond purchases in its current quantitative easing program.

Mortgage rates would likely rise if the Fed begins tapering its $85 billion monthly purchase of securities, but if the Fed maintains its current rate of purchases, mortgage rates could remain steady or fall in response to the news.

Retail sales fell short of expectations on Friday. The Department of Commerce reported a seasonally-adjusted growth rate of 0.20 percent in August against an expected reading of 0.50 percent and July's revised reading of 0.40 percent, which was initially reported at 0.20 percent.

The University of Michigan/Thompson Reuters Consumer Sentiment Index for September fell to its lowest reading since April. The September reading was 76.80 percent as compared to expectations of 81.50 percent and August's reading of 82.10 percent.

What's Coming, Will The Fed Taper Its Securities Purchases?

This week's economic news is highlighted by the Fed's FOMC statement scheduled on Wednesday after its two-day meeting. The announcement is expected to include an indication of the Fed's intention concerning its QE program and whether or not monthly securities purchases will be reduced. Fed chairman Ben Bernanke is scheduled to give a press conference after the FOMC statement.

Other scheduled economic news for this week includes the Consumer Price Index and Home Builders Housing Market Index on Tuesday; Wednesday brings reports on Housing Starts and Building Permits in addition to the FOMC statement and press conference. Thursday's economic reports include Weekly Jobless Claims and the Freddie Mac PMMS along with Existing Home Sales and Leading Indicators.

What's Ahead For Mortgage Rates This Week - September 9, 2013

Last week was relatively calm due to the Labor Day Holiday on Monday providing little mortgage and housing related news. However, there were several positive indicators for overall economic conditions.

Construction spending rose by 0.60 percent in July and surpassed economists' expectations of 0.30 percent and June's zero percent growth. While this may seem a small increase, any indication that construction spending is increasing could indicate that residential construction is ramping up.

This would be good news for home buyers, who've been facing a shortage of available homes in many areas of the U.S.

The Fed Released Its Latest Beige Book Report

Federal Reserve districts reported rising consumer spending in most districts, modest expansion in manufacturing and moderate residential real estate sales. Higher mortgage rates may have dampened home buyer enthusiasm, but an ongoing shortage of available homes is also likely to have contributed to slower sales.

Mortgage rates will likely rise if the Fed tapers its $85 billion monthly purchase of mortgage-backed securities and Treasury bonds as demand for bonds is expected to decrease. When bond prices fall, mortgage rates usually rise.

ADP released its report on private sector jobs added for August; 176,000 jobs were added against expectations of 185,000 jobs added and July's 198,000 jobs added. The three-month rolling average of private sector jobs added shows steady job growth as jobs added rose from 140,000 in May to 188,000 jobs for August.

Freddie Mac's Primary Mortgage Market Survey reported that the average rate for a 30-year fixed rate mortgage rose by six basis points to 4.57 percent with discount points unchanged at 9.70 percent. 

The average rate for a 15-year fixed rate mortgage rose by five basis points to 3.59 percent with discount points unchanged at 0.70 percent. The average rate for a 5/1 adjustable rate mortgage rose by four basis points to 3.28 percent with discount points unchanged at 0.50 percent.

According to the Bureau of Labor Statistics Non-Farm Payrolls Report for August, 169,000 jobs were created, which fell shy of expectations of 173,000 new jobs. Expectations were based on the original number of 162,000 jobs created in July, but July's number was revised downward to 104,000 jobs created.

The unemployment report for August was 7.30 percent, down 0.10 percent from July's reading of 7.40 percent.

The combination of higher mortgage rates, persistently high unemployment and fewer jobs created could signal the Fed to postpone its plan to start reducing its monthly securities purchases.

What's Coming Up

This week's scheduled mortgage and housing news is relatively flat, but Freddie Mac's Primary Mortgage Market Survey will provide the last indication of mortgage rates' direction before the FOMC meeting on September 18.

The Fed will also likely be watching the Weekly Jobs report and the University of Michigan's Consumer Sentiment Index as part of its decision-making process on whether to taper or maintain current QE securities purchases.

Pending Home Sales Indicates That The Housing Recovery Is Progressing

The National Association of REALTORS reported Wednesday that pending sales of existing homes fell by 1.30 percent in July.

According to the organization's Pending Home Sales Index, this was the second straight month that pending home sales dropped. July's Pending Home Sales Index reading was 109.50.

Signed Purchase Contracts For Existing Homes Tracked In The U.S.

• ·Northeast:  - 6.60 percent
• ·Midwest:    - 1.00 percent
• ·West:        - 4.90 percent
• ·South:       + 2.60 percent

Pending home sales were 6.70 percent higher year-over-year on a national basis. This indicates that the housing recovery is progressing, but at a slower pace.

Short supplies of available homes have also impacted sales. In some areas homebuyers are facing competition from multiple buyers for individual homes.

Another report released earlier in the week showed that the pace of rising home prices also slowed. This connects with fewer pending home sales, as when demand for homes cools, prices are likely to fall as well.

Pending home sales serve as an indicator for future home sales, as purchase contracts typically lead to completed home sales within two to three months.

Housing Market Developments Could Delay Fed Stimulus Decision

The Federal Reserve has indicated that it may begin reducing its stimulus program of buying $85 billion per month in U.S. Treasury bonds and mortgage-backed securities.

The Fed has repeatedly stated that continued monitoring of economic trends would weigh heavily on its decision if and when to modify its current stimulus program.

Mortgage rates have risen more than a percentage point since May when the Fed began discussing potentially "tapering" its monthly bond purchases.

The Fed may interpret the slower pace of rising home prices and pending home sales as a sign that it's not yet time to reduce its stimulus program. This could help with lowering mortgage rates, which are expected to rise when the Fed reduces its monthly securities purchases and eventually ends its stimulus plan.

Housing has led the economic recovery; faltering indicators in the housing sector suggest that the overall recovery is a fragile process.

Fed Meeting Minutes Reflect Support For Reducing QE Program

The minutes of last month's Federal Open Market Committee (FOMC) meeting show significant support for tapering the Fed's current amount of monthly securities purchases. These purchases, known as quantitative easing (QE), are an effort to maintain lower long-term interest rates including mortgage rates.

The Fed has been buying $85 billion per month in Treasury securities and mortgage-backed securities (MBS).

Ben Bernanke, chairman of the Federal Reserve and FOMC has hinted at "tapering" the Fed's securities purchases by year-end in recent statements. The FOMC minutes released Wednesday further suggest that tapering based on strengthening economic trends is likely.

FOMC Members Express Mixed Views

The minutes for the last FOMC meeting, which took place on July 30 and 31, states that many members are "broadly comfortable" with tapering QE securities purchases later this year if the economy continues to improve. At the same time, many FOMC members indicated that it "isn't yet time" to scale back the purchases.

All along, the FOMC has emphasized that it will closely monitor domestic and global financial and economic developments as part of its decision about when tapering the QE purchases will begin.

The minutes for July's meeting reflected this sentiment and noted "A few members emphasized the importance of being patient and evaluating additional information on the economy before deciding on any changes to the pace of asset purchases."

On the other side of the issue, the minutes note that a few members said that "It might soon be time to slow somewhat the pace of purchases as outlined in the QE plan."

QE Tapering Not The Only Influence On Mortgage Rates

The Fed is likely to monitor its words as well as economic conditions, as previous announcements about tapering QE made by Chairman Bernanke and FOMC have created havoc in world financial markets.

In relation to mortgage rates, it's likely that tapering QE purchases will cause mortgage rates to rise. Demand for bonds will fall as the Fed reduces its purchases, falling bond prices usually cause mortgage rates to rise.

It's important to keep in mind that tapering QE securities purchases is only one among many things that can impact financial markets, mortgage rates and the economy.

While the Fed is expected to begin tapering its securities purchases as soon as September, developing economic news throughout the world can potentially impact mortgage rates and could cause the Fed to revise its timeline for tapering the volume of its securities purchases. 

Fed Meeting Statement Positive For Ongoing Mortgage Sector Support

There was potentially good news for mortgage rates on Wednesday as the Fed's Federal Open Market Committee (FOMC) announced that its quantitative easing (QE) program would remain unchanged for the present.

Economists expect the Fed to begin tapering the amount of QE toward the end of the year in accordance with Chairman Ben Bernanke's previous statements that "tapering" would likely begin near year-end.

No specific date for reducing the QE assets purchases was given.

Chairman Bernanke has previously indicated that the Fed will closely review domestic and global economic developments as part of its decision-making process for changing the QE program. Wednesday's FOMC statement reaffirmed this plan.

Fed Cites Economic Expansion and Improving Labor Conditions

The FOMC statement cited modest economic expansion, improving labor markets and continued high unemployment levels as a basis for continuing its current level of QE.

The Fed's mandate requires it to support price stability and low unemployment; reversals in these or other economic areas could cause the Fed to continue its QE at present levels. At present, economists expect QE to end in mid-2014.

The FOMC statement also indicated that the target federal funds rate will remain between 0.00 and 0.25 percent at least until the national unemployment rate falls to 6.50 percent. Chairman Bernanke did not give a press conference after Wednesday's statement was released.

Quantitative Easing: Monthly Purchase of MBS, Treasury Securities Intended to Control Mortgage Rates

The Fed currently purchases $40 billion in mortgage-backed securities (MBS) and $45 billion in Treasury securities monthly. These purchases are intended to control long-term interest rates including mortgage rates.

When the Fed begins tapering and eventually concludes these asset purchases, demand for MBS and Treasury securities are expected to fall and their prices will likely fall as well. When prices for bonds include MBS fall, mortgage rates traditionally rise.

With mortgage rates recently moving up, reducing the level of the Fed's QE asset purchases is cause for concern. Higher mortgage rates make homes less affordable; the combination of rising home prices and mortgage rates presents challenges for first-time home buyers and others without sufficient funds for meeting higher down payments and monthly mortgage payments.

Now would be a very good time to ask your trusted mortgage professional for a personal review of your mortgage situation.  Give them a call and ask for your private assessment today.