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Monday Market Update: Rates Mostly Unchanged After Heavy Data Week

Last week was a busy one for economic data, but the news turned up mostly unremarkable, and mortgage rates showed little reaction. The conventional 30-year fixed rate ticked up by 1/8 of a point, the 15-year fixed conventional rate rose by 3/8 of a point, and the FHA rate (30-year fixed) dipped by 1/8 of a point. See the movement below:

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FOMC and Quantitative Easing

And now for the data. We learned on Wednesday (7/30) that the Federal Open Market Committee (FOMC) would continue “tapering” (reducing) quantitative easing as scheduled. Nothing too crazy here. Markets had already expected the news.

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In theory, less quantitative easing (QE) would mean higher mortgage rates. The Fed’s QE program calls for bond purchases (in this case long-term U.S. Treasury Bonds and Mortgage-Backed Securities) to put downward pressure on borrowing costs – and, especially relevant for our purposes, mortgage rates. The program succeeded, and by late-2012, rates fell to the lowest levels ever recorded.

As the economy has improved, the FOMC voted to begin extricate itself from the bond-buying business. The “tapering” roadmap has slowly reduced QE. Last Wednesday, the FOMC voted to reduce bond purchases by another $10 billion total. Now, the Fed is scheduled to purchase $10 billion of mortgage-backed securities and $15 billion in longer-term Treasury securities per month.

Mortgage rates have not responded quite as expected. Analysts thought that the 30-year fixed could rise to the mid-5.0% level as tapering continued through 2014, but here we are and the 30-year fixed remains in the low-4.0% area. This affordable window won’t last forever… now is a good time to buy!

U.S. GDP

The U.S. economy as measured by Gross Domestic Product (GDP) grew at a pace of 4.0% in the second quarter of 2014, according to the Bureau of Economic Analysis. GDP had declined by 2.1% in the first quarter, so the growth acceleration came as a particular relief.

Economists attribute much of the movement to changes in inventory investment. Inventories were down in the first quarter, and as businesses adjusted them upward in the second, GDP growth followed. Consumer spending also helped GDP rise.

 

July Employment

Payrolls added 209,000 jobs in July, which was lower than the consensus expectation of 233,000. The unemployment rate ticked up to 6.2% (from 6.1%).

Construction employment rose by 22,000 jobs in July, and over the past year construction payrolls have grown by 211,000 jobs.

Payrolls have added about 2 million jobs over the past year, although the labor participation rate has actually dropped from 63.4% to 62.9%. Though job growth has been much stronger in 2014, the dip in participation suggests that the pace of job growth isn’t able to satisfy the needs of both population economic and recovery from the recent economic recession.

The news wasn’t far enough outside of expectations to cause any major market movements. Mortgage rates are very little changed from our last report last Wednesday, July 30. Stay tuned for our next mortgage rate update on Wednesday, August 6.

 


Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email info@centralcoastlending.com to set up a free pre qualification. We are The Mortgage Experts: ask us anything!

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