Inflation and Mortgage Rates Remain Low
A wide range of major economic data released during the week and comments from the Fed reinforced the consensus outlook for the economy. Economic growth appears to be on track for gradual improvement, while inflation is not a concern in the short-term. With few surprises this week, mortgage rates ended the week nearly unchanged.
The economy is currently experiencing moderate economic growth with low inflation. In a speech on Tuesday, Fed Chief Bernanke indicated that the recession is "very likely over". Retail Sales and Industrial Production showed nice increases this week. Housing Starts, Building Permits, and Homebuilder Sentiment also moved higher. Meanwhile, there have been few signs of inflation in the short-term. For example, Core CPI rose at a modest 1.4% annual rate, the lowest annual rate since February 2004. Tame inflation readings have helped mortgage rates stay at low levels.
Recently, the Fed has been purchasing about $25 billion of mortgage-backed securities (MBS) each week, which represents a very high percentage of the average new issues. At this pace, the Fed will purchase the entire $1.25 trillion authorized for the program by the end of the year, when it's currently scheduled to discontinue its MBS purchases. On Wednesday, at the conclusion of next week's Fed meeting, investors will be hoping to receive an update on the MBS purchase program. The majority outlook is that the Fed will purchase the full $1.25 trillion and end the program, possibly by gradually reducing the level of weekly purchases and extending them into next year. Still, a significant number of investors expect the Fed to increase the limit, while others think the Fed will end the program early. Since mortgage rates are largely determined by MBS prices, changes in the level of demand from the Fed could have a large impact.
Compliments of
Eric Glick
Bank of America Home Loans
Home Loan Consultant
PHONE:
(912) 308-5931
FAX:
(866) 409-2128
eric.glick@bankofamerica.com
7150 Hodgson Memorial Drive
Suite A
Savannah, GA 31406