The Home Buyer's Korner

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March 10th, 2014

What Home Buyers Need to Know for the Week of March 10, 2014

Guy looking up in colorMortgage bonds sold off last week and touched a near 10-week high as tensions between Russia and Ukraine increased; the economy showed signs of growth and the February Non-Farm Payrolls report posted a better-than-expected result.  Mortgage rates will continue to be affected by the ongoing events in Ukraine. Additionally, the disappearance of Malaysian Airlines Flight MH370 may affect rates. If the event is determined to be a mechanical failure, the effect on rates will be nil. However, if it’s learned that there’s a link to terrorism or war, safe-haven buying may commence and mortgage rates should fall.

The 4.0% 30-year Fannie Mae (FNMA) coupon posted its worst one-week performance in over three months last week. Nationwide, a 30-year fixed rate mortgage moved higher by as much as +0.50 percentage points and a home buyer’s purchasing power fell by as much as four percent.

The majority of last week’s action came in after we got the February Non-Farm Payrolls report. The report showed 175,000 net new jobs created last month, with a net +25,000 revision to the results of the prior two months. It was also the first time since November that Non-Farm Payrolls beat its 6-month moving average.

Currently, the Federal Reserve purchases $30 billion of mortgage-backed securities (MBS) monthly in a program known as “Quantitative Easing”. The program helps to keep mortgage rates affordable by creating artificial demand for MBS and mortgage rates down.

According to the Fed, Quantitative Easing helps create jobs. The Federal Reserve has a dual mandate to maximize employment and stabilize inflation. In theory Quantitative Easing increases the number of working Americans, but at the risk of inflation.

Freddie Mac’s most recent survey indicated that with Quantitative Easing at $30 billion monthly, the national average conforming rate is at 4.28% and without Quantitative Easing analysts say, today’s mortgage rates would be closer to 5%. This is among the reasons why mortgage rates spiked last week, and why rates are continuing higher today. 

What’s Ahead for the Week? 

Little economic data is set for release, so markets are expected move on last week’s momentum and in response to geopolitical events.

Two Federal Reserve members are scheduled to speak today; Philadelphia Fed President Charles Plosser and Chicago Fed President Charles Evans. Wall Street will be listening for clues about the future of Quantitative Easing and other Fed policy ahead of next week’s Federal Open Market Committee meeting.

There are also two Treasury Auctions which can affect mortgage rates — one for the 3-year note on Tuesday and the other for the 10-year note on Wednesday. Treasury yields don’t link with MBS directly, but strong international demand for U.S. Treasury issuance’s tends to correlate with high demand for MBS. 

Thursday we get Initial Jobless Claims; Retail Sales and closing the week for Friday we’ll get the Producer Price Index.

If you’re interested in learning more about home ownership in your city be sure to visit “The Home Buyer’s Korner” to the right of our blog. Here you’ll find great information from local real estate agents, mortgage lenders and general contractors to assist you.