Mortgage Bonds continued to fall last week as the Fed met and more volatility followed. Read on to learn what happened.
After last week’s meeting of the Federal Open Market Committee (FOMC), the Fed released its Policy Statement, noting that the downside risks to the outlook for the economy and labor market have diminished. Especially important: There was no mention of tapering their Bond Purchase program known as Quantitative Easing.
However, in the press conference that followed, Fed Chairman Ben Bernanke said, “Assuming the economy and labor conditions evolve as the Committee expects, the Fed anticipated it would begin tapering later this year and to finish by mid-2014.” This mixed message caused a sell-off in both Stocks and Bonds, adding to the volatility the markets have seen of late.
In economic reports of note, there was more good news in the housing sector as Existing Home Sales rose by 5.18 million units annualized in May. This is an increase of 12.9 percent from May 2012 and the highest rate since 5.44 million units were sold in November 2009. Housing Starts also rose by 7 percent in May, and though they came in lower than expected, they are actually up a whopping 28 percent since May 2012.
There was also some good news for the manufacturing sector, as both the Philadelphia Fed Index and the New York State Empire Manufacturing Index came in well above expectations. And inflation at the consumer level remains tame. This is good news for Bonds—and therefore home loan rates, which are tied to Mortgage Bonds— as inflation reduces the value of fixed investments like Bonds.
What does all of this mean for home loan rates?
The Fed’s Bond purchase program has helped Bonds and home loan rates remain attractive. However, just the talk of potentially tapering these purchases has led to increased volatility in the markets, causing Mortgage Bonds and home loan rates to worsen recently. In addition, strong economic news has also added to the sell-off in Bonds, as investors have hoped to take advantage of gains.
Courtesy of Bret Dody loan officer at Green Tree Mortgage