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Weekly Market Update from The Cascade Team

Posted by The Cascade Team Real Estate on Saturday, September 21st, 2013 at 7:42am

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Last Week in Review: There was surprising news from the Fed. Plus inflation remains tame while housing continues to strengthen.
Forecast for the Week: This week's calendar is busy, with key news on inflation, housing, Gross Domestic Product and more.
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"Listen to what the man said." The   title of Paul McCartney's hit song also applied to Fed Chairman Ben Bernanke   last week, as the Fed made an important decision that impacted the markets   and home loan rates. Read on for details. 
 
          Last Wednesday, the Fed   unexpectedly delayed tapering of its Bond purchase program (known as   Quantitative Easing) as Bernanke said that the economy still isn't strong   enough to begin easing back its purchases. Remember that the goal of these   purchases has been to stimulate the economy and housing market. In his press   conference, Bernanke said that tapering could come towards the end of the   year, but for now the Fed will continue to purchase $45 billion per month in   Treasuries and $40 billion in Mortgage Bonds.
 
  After the news, Stocks had a record trading day while Mortgage Bonds had   their biggest one-day rally since August 2011. This is significant because   home loan rates are tied to Mortgage Bonds, so the Fed announcement helped   home loan rates as well.
 
  In other news, the Consumer Price Index for August came in below expectations   and was lower than the July reading, showing that inflation at the consumer   level still remains tame. The year-over-year CPI reading fell to 1.5 percent,   led lower by a decline in energy prices, and remains below the Fed's upper   target range of 2 percent.
 
  In housing news, Housing Starts rose by 0.9 percent from July to August while   Building Permits fell by 3.8 percent. However, there was a big surge in   permits for single-family dwellings, pointing towards a sustained   strengthening in the housing recovery. Existing Home Sales also came in above   expectations, reaching an annual rate of 5.48 million units in August, a   six-year high.
 
  What does this mean for home loan rates? Economic data in the   coming weeks and months will be a key factor in whether the Fed begins   tapering its Bond purchases later in the year or in 2014. This timing could   pay a big role in the direction Bonds and home loan rates move in the months   ahead.
 
  The bottom line is that now remains a great time to consider a home   purchase or refinance, as home loan rates remain attractive compared to   historical levels. Let me know if I can answer any questions at all for you   or your clients.

 Another full week of economic reports is ahead, with news on inflation, housing, Consumer Confidence and more.

  • Housing data is plentiful this week. First up, the S&P/Case-Shiller      Home Price Index will be released on Tuesday, followed by New Home      Sales on Wednesday and Pending Home Sales on Thursday.
  • Tuesday also brings Consumer Confidence. The Consumer      Sentiment Index will be delivered on Friday.
  • Durable Goods Orders      will be released on Wednesday. This report measures orders for items that      last for an extended period of time.
  • Weekly Initial Jobless Claims will be reported as usual on Thursday.
  • Also on Thursday, we will see the third and final      estimate of Gross Domestic Product for the second quarter. The      initial reading was a rather weak 1.7 percent while the second reading      came in at 2.5 percent.
  • Ending the week, look for Personal Income and      Spending along with Personal Consumption Expenditures, the      Fed's favorite read on inflation, on Friday.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

When you see these Bond prices moving higher, it means home loan rates are improving -- and when they are moving lower, home loan rates are getting worse.

To go one step further -- a red "candle" means that MBS worsened during the day, while a green "candle" means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart above, the Fed's decision not to taper its Bond purchases led to a huge rally. I'll be watching closely to see if Bonds and home loan rates can hold on to these improvements.

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