Blog

Mortgage Rate Information

April 15th, 2013 | Mortgage Rates

By Mike Vila on April 15, 2013

After an early morning sell-off, mortgages rallied in the afternoon and ended yesterday more or less unchanged.  This morning mortgages are flat, and given the lack of scheduled economic releases, I don’t anticipate much change in mortgage rates.  However, Boston Fed President Eric Rosengren (who is typically pretty dovish on monetary policy) speaks around lunch, and if he indicates that he is open to the idea of tapering asset purchases later in the year, we could see some selling off in the afternoon.

Want to save on your monthly mortgage payment? Click here for today’s rates or call us today at 305-271-8181

Given the lack of anything else to discuss, and the need to fill some space, it’s probably worth delving a little further into this week’s Fedspeak.  Currently the Fed is purchasing $85 billion in long duration Treasuries and MBS in order to keep long term rates low.  How long the asset purchases continue is going to have a massive impact on mortgage rates, and is something to which we need pay close attention.  Yesterday Janet Yellen spoke in Washington, D.C., and addressed Fed policy (Yellen is the Vice Chair, seemingly a favorite to replace Bernanke, and quite dovish).  Not surprisingly, she endorsed a continuation of the Fed’s current stance, with a few small caveats:

“Some have asked whether the extraordinary accommodation being provided in response to the financial crisis may itself tend to generate new financial stability risks. This is a very important question. To put it in context, let’s remember that the Federal Reserve’s policies are intended to promote a return to prudent risk-taking, reflecting a normalization of credit markets that is essential to a healthy economy. Obviously, risk-taking can go too far. Low interest rates may induce investors to take on too much leverage and reach too aggressively for yield. I don’t see pervasive evidence of rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would threaten financial stability. But there are signs that some parties are reaching for yield, and the Federal Reserve continues to carefully monitor this situation.”

“In terms of the labor market, we have seen only a moderate improvement in labor market conditions over the past six months or so. After an encouraging pick up in the pace of job creation around the turn of the year, the employment report for March showed a gain of only 88,000 jobs. While I don’t want to read too much into a single month’s data, this underscores the need to wait and see how the economy develops before declaring victory prematurely. I’d note that we saw similar slowdowns in job creation in 2011 and 2012 after pickups in the job creation rate and this, along with the large amount of fiscal restraint hitting the economy now, makes me more cautious.”

Dudley forecasts growth of 2-2.5% throughout the remainder of the year, and a “modest” decline in the unemployment rate.  He said that the asset purchase program continues to yield greater benefits than costs.  At the end he more or less hedged the whole thing, saying that if conditions improve QE could be dialed back, but if things deteriorate they could be quickly restored.

Narayana Kocherlakota (Minneapolis Fed) also spoke yesterday.  His comments were a little more interesting, simply because he has evolved from a hawk to a dove in recent years, or maybe he’s simply a pragmatist.  Kocherlakota said that he expects inflation to remain subdued and that unemployment will only very slowly improve, and he actually thinks the Fed is not accomodative enough right now.

“Based on my outlook for the next two years, I’ve concluded that the FOMC would better fulfill both of its congressional mandates by adding more monetary policy accommodation. How could it do so? I think that there are several possible approaches available to the Committee. For example, the FOMC could reduce the public’s level of policy uncertainty by clarifying the nature of the economic conditions that would lead the Committee to reduce or stop its current asset purchases. Alternatively, the Committee could communicate to the public that, once the removal of monetary accommodation eventually commences, the rate of withdrawal will be slower than is currently anticipated.

Both of these kinds of changes in communication could potentially provide needed monetary accommodation. However, they would require the FOMC to make relatively complex changes to the language of its current communications. My own preferred approach is considerably simpler. In its current forward guidance, the FOMC has stated that it expects the fed funds rate to remain extraordinarily low at least until the unemployment rate falls below 6.5 percent. The FOMC could provide additional needed stimulus by lowering the threshold unemployment rate from 6.5 percent to 5.5 percent—that is, by changing one number in the existing statement.”

Very Interesting :   There’s more Fedspeak throughout the remainder of the week, but I highlight these three because I think it speaks to the point that QE is seemingly not in danger of tapering as many seem to think/fear.  Of course it all depends upon the economic situation moving forward, but I can’t find a whole lot of analysts who think the economy is suddenly going to spring to life.  It seems most likely that we continue to see stagnation/slow growth, and I think asset purchases will largely remain in place throughout the year.  This should help rates to remain low for the forseeable future.
 

Comments



Leave a Comment

Contact Us


Not readable? Change text.