Market Reports
A Mortgage Update from Jay Skwierawski for the week of June 14
Hello everybody!
Mortgage rates started last week where we left off the week before - on the rise. However, mid-week market sentiment seemed to change, and we saw a reversal, with mortgage rates ending the week slightly better than where we started. What has caused rates to go up recently? Supply. The government has to raise cash to pay for all of the stimulus programs that it has enacted over the past year to help us the country get out of the recession. That cash comes from the sale of treasury bonds. The problem is that there is so much cash being spent, that the markets are unsure if there will be enough interest (pardon the pun!) in the bonds. So, in order to attract investors, the rate on the bonds has to go up. In addition to all of the treasury bonds hitting the markets, billions of dollars of mortgage bonds are hitting the markets from all of the people that have been refinancing. So, we've seen interest rates going up to get through the glut of all of the treasury bonds and mortgage backed securities hitting the market. In the middle of last week, the Treasury finished a round of bond selling, which went fairly well, and some big investment firms announced that they are purchasing mortgage backed securities. This helped to settle the markets down, and we saw rates change course. The week ahead could be a tough one for the stock and bond markets, as there is a slew of information coming out, including important reads on inflation, housing and unemployment claims.
The economic news that was released last week was pretty rate friendly:
On Wednesday, we learned that our trade imbalance with the rest of the world increased. What does this mean? We imported more than we exported. Since part of what we import is oil, and the cost of oil has increased recently, the trade deficit typically rises in step with the price of oil. Thursday's report on Retail Sales in May showed an increase of 0.5%, higher than the 0.2% that was expected and the -0.2% that was reported in April. The Retail Sales report has a big impact on mortgage rates, since so much of our economy is based on the consumer. However, a big reason for the increase in retail sales in May was due to the increase of the cost of gas at the pump. This makes sense. I know it has been costing me quite a bit more to fill up the tank. I'm spending a lot more, but driving off with the same amount of gas. First time Unemployment Claims decreased to 601,000 from 625,000 the week before, and were well below expectations of 615,000. However, continuing claims for unemployment (those people that are unable to find work) increased to another record number, with no signs of improvement in sight. Finally, on Friday the University of Michigan Consumer Sentiment came in slightly lower than expected, but higher than the previously reported number. This might not bode well for future retail sales figures.
As I am writing this on Monday morning, the mortgage bond market is continuing its rally for the better that began last week. I will continue to watch the markets and will keep you posted throughout the week ahead on any major movements, one way or the other, in mortgage rates.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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