May
03

Mortgage Update May 2013

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Mortgage_Chart_05-09-13

 

Unemployment Rate Falls

During a week packed full of major economic news, the big market mover was Friday’s stronger than expected Employment report, and mortgage rates ended the week higher. This week’s Fed and ECB meeting announcements produced some volatility but had little net impact.

Following a dismal March Employment report and weaker than expected first quarter GDP data, investors were concerned about another spring slowdown for the US economy. The April Employment report helped alleviate those fears, however. Against a consensus forecast of 155K, the economy added 165K jobs in April. The bigger news was that the figures for February and March were revised higher by 114K. With the revisions, the economy added an average of more than 200K jobs per month during the first quarter. The Unemployment Rate unexpectedly declined from 7.6% to 7.5%, the lowest level since December 2008. Without a doubt, the data was significantly stronger than expected, which is good news for the economy. But for mortgage rates, it was bad news for a couple of reasons. It increases future inflation expectations and it moves the Unemployment Rate closer to the 6.5% target which may cause the Fed to scale back its bond purchase program.

The Fed concluded its highly anticipated meeting on Wednesday. Prior to the release of its statement, investors, expecting to see clearer signs of support for an increase in the magnitude or the duration of the bond buying program, pushed up the price of Treasuries and mortgage-backed securities (MBS). The Fed statement was little changed from the last statement, however, causing MBS prices to lose their earlier gains. The Fed will continue asset purchases until the labor market improves “substantially”. The primary change to the statement was the addition of the language that the Fed is “prepared to increase or reduce” the pace of its asset purchases based on changes in its outlook for the labor market and inflation.chart 050313

Also Notable:

  • Pending Home Sales increased to the highest level since April 2010
  • Weekly Jobless Claims fell to the lowest level since January 2008
  • As expected, the European Central Bank (ECB) cut rates by 25 basis points
  • Eurozone unemployment rose to a record high of 12.1%

 

Graph courtesy New York Times article and newsletter by Fred Ashe from Citi Financial Group.

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