About Last Week…
The Federal Reserve has downgraded growth expectations for the United States economy. Back in March, the Fed had expected 2014 growth for U.S. gross domestic product (GDP) to reach between 2.8% and 3.0% . Upon close of its meeting last week (June 18), the Fed downgraded expectations to between 2.1% and 2.3%.
Gross Domestic Product quantifies economic output by totaling the market value of all goods and services produced.
Despite the GDP downgrades – of which prolonged poor winter weather is partially to blame – Chairman Janet Yellen spoke optimistically about the future, citing improvements in employment and the housing market.
The Fed expects 2014 to end with an unemployment rate between 6% and 6.1%, and in the long run, a dip to the mid-5.00% level.
Of particular relevance for mortgage rates, the Federal Open Market Committee (FOMC), the Fed’s policy-setting wing, has continued to “taper” quantitative easing. The bond-buying stimulus program now calls for $35 billion in monthly purchases, including $15 billion per month in mortgage-backed securities (MBS). At peak, the Fed bought $40 billion in MBS per month, which had helped mortgage rates fall to record-low levels in late-2012.
As the Fed has extricated itself from U.S. Treasury bond and MBS markets, mortgage rates have increased, though perhaps not to the extent that some might have expected.
Elevated demand for U.S. bonds (including MBS), correlate to downward pressure on mortgage rates. The Fed helped juice the housing market by guaranteeing such demand. As they have exited the market, investors have stepped in, buying into U.S. bond markets to find safety from the slowing U.S. economy, and geopolitical turmoil.
Also in the news last week…
Home construction activity fell in May. Housing starts fell 6.5 percent month-over-month, but was still 9.4% higher than the same time period in 2013. Permits for new developments actually fell 1.9% yearly.
Jobless claims dipped to 312,000 for the week ending June 14. Meanwhile, the manufacturing sector noted some good news: industrial production rose 0.6% in May.
Mortgage rates have started at lower levels than they ended last week (see sidebar to the right). Pricing has dipped for the 30-year fixed 4.125% rate by 1/8 of a point.
[ATTENTION REALTORS: To provide your open house customized rate and loan scenarios for any property, email rylan@CentralCoastLending.com]
Stay tuned for our full 10 program rate update on Wednesday.
Any questions about home loans? We have the loan portfolio to meet the need of any client, and the expertise to make every closing simple and timely. Give us a call at 805.543.LOAN or an email at info@CentralCoastLending.com.