A Mortgage Update from Jay Skwierawski for the week of June 15
Hello Everybody!
First of all, to all of you that it applies, I wish you a Happy Father's Day!
Interest rates rose this past week on inflation fears and some positive news out on the economy.
We can blame the Federal Reserve Governors for the inflation scare. In several speeches this week, the Fed seemed to be preparing the markets for an increase in short term interest rates. While the economy isn't exactly going gangbusters, it seems to be holding steady, albeit a "very weak steady," while at the same time we are seeing definite signs of inflation at every turn. I paid $4.35 per gallon for gas this morning. Worse yet, the gas pump stops at $100, because that's the limit, so I actually had to put my credit card back in and pump the remaining $15. Fun stuff! The high cost of gas doesn't seem like it's going away anytime soon. Earlier this week, after it appeared that oil had topped out, we had the largest one day increase in the cost of a barrel of oil. Ouch!
Most of the news out on the economy this week was so-so, but the market seemed to focus on Retail Sales and the price of oil. This week's news:
Tuesday - the balance of trade came in worse than expected, meaning we are importing more than we are exporting. This makes sense with the price of oil increasing as it has, considering our great thirst for oil.
Wednesday - Crude oil inventories came in less than expected. The markets were anticipating that inventories would rise, as we Americans started using less gas, especially with gas priced at over $4.00 a gallon. If inventories go up, which means demand is going down, then the price would go down. Also on Wednesday, the Fed's Beige Book was released. The Beige Book is used as a barometer of how the economy is doing in the different Fed areas. There were no surprises in the release. The economy has softened, and there are upward pressures on prices.
Thursday - The big news of the week was that Retail Sales came in twice as much as expected in May, and Retail Sales, excluding automobiles, came in much better than expected as well. Market players were waiting for these numbers to see how much affect the President's economic stimulus checks had on the economy during their first month of release. Turns out people were spending those checks instead of saving them, and they weren't just spending them at BP Amoco and Shell. Also on Thursday, the government reported that first time Unemployment claims jumped twice as much as expected. Maybe people should be holding on to those stimulus checks after all.
Friday - The Consumer Price Index (CPI) rose 0.6% in May, a touch hotter than the 0.5% expected by the market. This represents the fastest pace in 6 months. The Core CPI, which excludes food and energy prices, rose 0.2%, right in line with expectations. Overall, the CPI has risen 4.2% on a year over year basis, and has risen at a 4.9% annual pace over the past three months. This is definitely a result of higher oil prices. While the main CPI number is uncomfortably high, the core CPI is up only 2.3% in the past year, which is only slightly higher than the Fed's target rate, and it has risen at a modest 1.8% pace over the past three months, which is in line with the Fed's target rate. Also on Friday, the University of Michigan Consumer Sentiment number came in at 56.7, well below expectations of 59.5. This is not a big surprise that consumers are down a bit on the current economic climate.
Next week is one of those busy weeks for economic updates, which could bring more volatility to mortgage rates. Scheduled for release:
Monday - The Empire State Index, an indicator of the economic climate in the New York region (Moderate)
Tuesday - The Producer Price Index (PPI) and Core PPI - Inflation at the wholesale level (Moderate)
Tuesday - Housing Starts and Builder Permits (Moderate)
Tuesday - Industrial Production and Capacity Utilization (Moderate)
Wednesday - Crude Oil Inventories (Moderate)
Thursday - Philadelphia Fed Index (HIGH)
Thursday - First Time Unemployment Claims (Moderate)
Thursday - Index of Leading Economic Indicators (Moderate)
In addition to these reports, the markets will be watching the price of crude oil and listening to Fedspeak for any hints on the future direction for interest rates. Mortgage rates rose to their highest level in 4 months this week. As you will see by the chart above, the movement in rates was not pretty. The chart shows the price of mortgage bonds, which move opposite the rates on those bonds. The most recent day (Friday) is on the far right. Rates were steady on Monday, jumped on Tuesday, were steady again on Wednesday, and then jumped on Thursday and Friday. We are now well below the 200 day moving average, which is a good indication of rising interest rates.
We will keep you posted on any major changes in the mortgage market.
Have a great week!
Jay Skwierawski
President
First Sterling Mortgage Services, LLC
737 North Michigan Avenue, #1900
Chicago, IL 60611
312.268.7601
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