Last Wednesday’s Fed meeting was viewed as mildly negative for mortgage rates, while threats from North Korea on Friday were slightly positive. As a result, mortgage rates ended the week with little change.
For investors, the most notable information from the Fed meeting was that a rapid pace of raising the federal funds rate received support from more Fed officials than expected. Roughly 75% of Fed officials forecasted one more rate hike this year and three rate hikes in 2018. This news caused mortgage rates to rise.
In the years following the financial crisis, the Fed sought to drive longer-term interest rates lower and stimulate the economy by purchasing enormous quantities of Treasury bonds and mortgage-backed securities (MBS). While there is broad agreement that those goals were achieved, the purchases left the Fed with massive holdings of these securities. On Wednesday, the Fed said that it is going to gradually shrink its balance sheet beginning in October. Investors had been expecting this announcement at this meeting, so there was little reaction.
On Friday, North Korea threatened to detonate a hydrogen bomb over the Pacific Ocean. Investors reacted to this by shifting to relatively safer assets, including MBS. The increased demand for MBS caused mortgage rates to decline a little.
In August, single-family housing starts rose from July. However, the streak of strong readings seen over the last three months may be at risk, as the effects of the hurricanes will be seen in coming months. According to the Commerce Department, about 13% of home construction takes place in regions in Texas and Florida that were affected by the recent hurricanes.
Looking ahead, New Home Sales will be released on Tuesday and Pending Home Sales on Wednesday. In addition, there will be Fed speakers every day next week including a speech by Fed Chair Janet Yellen on Tuesday. So we will watch closely to what they have to say.
Please reach out with any questions in regards to this, and let us know if there is anything we can do for you and your valued clients.
Thank you for your continued support, have a productive week.
SVP, Regional Manager
THE CRAWFORD TEAM
V.I.P. Mortgage, Inc.