Housing Recovery to Continue in 2013
The U.S. economy will stay on a moderate growth path in 2013 amid weak consumer spending and business investment, according to a new survey published by the National Association for Business Economics.
The survey forecast that the U.S. housing market recovery will continue next year, with strong gains in residential construction and home prices. They also forecast gross domestic product would grow at an average annual rate of 2.1 percent in 2013. It predicted a 2.2 percent rate in 2012. The estimates are little changed from October’s survey.
The labor market is seen improving, with nonfarm payrolls averaging 165,000 jobs per month next year. That is an improvement on the 155,000 jobs per month estimated in October.
So far in 2012, job gains have averaged 151,000 per month. The survey forecast the unemployment rate averaging 7.7 percent in 2013, down from the 7.9 percent predicted in October.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -15 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move slightly higher. We had our highest mortgage rates on Thursday and our lowest rates on Monday.
The real market mover of the day was obviously the Fed. Mortgage backed securities sold off ( higher rates for you) at the exact time that the Fed released their new policies.
The Federal Reserve left their target interest rate alone (which was widely expected) but they did drop a few bombs that were not expected. For the first time ever, the Fed has issued target rates and has pegged their future action to those target rates. They announced that they would keep their interest rates low until the Unemployment Rate dropped below 6.5% and/or inflation tops 2.5%.
Additionally, their recently extended “Operation Twist” is set to expire at the end of this year. So they announced an additional $45 billion per month of bond buying for 2013. They also reaffirmed their $40 billion per month of purchase of TBA MBS (Originally announced on 09/13). This is not new money for MBS, it is simply their previously announced program.
Previously, bonds have rallied whenever the Fed has announced a new wave of Quantitative Easing. But not this time. This time MBS sold off sharply. Why?
Because EVERYTHING that they announced is VERY inflationary in nature. And bonds hate inflation. Yes, temporarily inflation will be low as borrowing costs are low. But three to five years down the road, the math (which cannot be argued) clearly adds up to massive inflation and investors that purchase bonds for a return 5, 10 or even 30 years down the road understand that their real rate of return will be hammered by inflationary pressure.
What to Watch Out For This Week:
The following are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises:
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|17-Dec||8:30 AM||Empire Manufacturing||–||2||-5.2|
|17-Dec||9:00 AM||Net Long-Term TIC Flows||–||NA||$3.3B|
|18-Dec||8:30 AM||Current Account Balance||–||-$103.6B||-$117.4B|
|18-Dec||10:00 AM||NAHB Housing Market Index||–||47||46|
|19-Dec||7:00 AM||MBA Mortgage Index||–||NA||6.20%|
|19-Dec||8:30 AM||Housing Starts||–||873K||894K|
|19-Dec||8:30 AM||Building Permits||–||876K||866K|
|19-Dec||10:30 AM||Crude Inventories||–||NA||0.843M|
|20-Dec||8:30 AM||Initial Claims||–||345K||343K|
|20-Dec||8:30 AM||Continuing Claims||–||3192K||3198K|
|20-Dec||8:30 AM||GDP – Third Estimate||–||2.70%||2.70%|
|20-Dec||8:30 AM||GDP Deflator – Third Estimate||–||2.70%||2.70%|
|20-Dec||10:00 AM||Existing Home Sales||–||4.90M||4.79M|
|20-Dec||10:00 AM||Philadelphia Fed||–||1||-10.7|
|20-Dec||10:00 AM||Leading Indicators||–||-0.20%||0.20%|
|20-Dec||10:00 AM||FHFA Housing Price Index||–||NA||0.20%|
|20-Dec||10:30 AM||Natural Gas Inventories||–||NA||2|
|21-Dec||8:30 AM||Personal Income||–||0.30%||0.00%|
|21-Dec||8:30 AM||Personal Spending||–||0.30%||-0.20%|
|21-Dec||8:30 AM||PCE Prices – Core||–||0.10%||0.10%|
|21-Dec||8:30 AM||Durable Orders||–||0.20%||0.50%|
|21-Dec||8:30 AM||Durable Orders -ex Transportation||–||-0.40%||1.80%|
|21-Dec||9:55 AM||Michigan Sentiment – Final||–||74||74.5|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.