Wednesday, September 18th
WEDNESDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned with a somewhat surprising announcement of a half-point cut in key short-term interest rates. A rate cut was widely expected at this meeting, but the consensus was only a quarter-point move at this time. It appears they are also expecting two more reductions before the end of the year and four additional next year.
9/32
Bonds
30 yr - 3.68%
2
Dow
41,604
32
NASDAQ
17,660
Trailing 90 Days - National Average
High
Positive
Their revised economic projections that followed the rate cut announcement showed revisions to several key metrics. Their prediction for the U.S. unemployment rate at the end of this year was raised from their previous estimate of 4.0% to 4.4%. They now expect the economy to grow (GDP) at a 2.0% annual rate, down slightly from the previously announced 2.1%. Furthermore, inflation estimates were lowered slightly, but still are expected to be above their preferred 2.0% annual rate at the end of the year.
Medium
Negative
Overall, there is a lot of favorable news bits in this afternoon’s headlines. The larger half-point move signals the Fed is comfortable inflation will remain on its downward trend despite the reduction that is done to boost economic activity. Their revised economic projections can all be put under the good news for bonds column. Therefore, it is a little surprising that we have seen bonds react negatively to the news.
Medium
Negative
Stocks made a knee jerk reaction as the news hit the wires before stabilizing with a modest change from this morning’s levels. The Dow is now down only 2 points after being down 84 this morning, while the Nasdaq went from up 11 points earlier to now up 32 points. The bond market is currently down 9/32 (3.68%), which may be enough of a move for some lenders to revise rates slightly higher than this morning’s pricing. Fed Chairman Powell is currently in his press conference, so additional headlines could alter this afternoon’s trading and mortgage pricing.
Low
Negative
August's Housing Starts report was released at 8:30 AM ET this morning. It showed new home groundbreakings jumped 9.6% last month, exceeding forecasts. That headline number includes multi-family housing, such as apartment buildings. New starts of single-family homes that are more relevant to mortgage rates spiked 15.8%. It is worth noting that that large increase is being attributed to weather-related delays in July. Still, the headline numbers make the report bad news for bonds and mortgage rates.
Medium
Unknown
Tomorrow has three pieces of data that we will be watching, but none of them are considered to be highly important or influential. First will be last week’s unemployment figures at 8:30 AM ET. They are expected to show the same 230,000 new claims for benefits as the previous week. Good news for mortgage rates would be a sizable increase in initial filings because rising claims are a sign of a slowing employment sector.
Medium
Unknown
Next up is August’s Existing Home Sales report from the National Association of Realtors at 10:00 AM ET. They are expected to announce a decline in home resales, pointing to weakness in the housing sector. Good news for mortgage rates would be a large drop in sales.
Medium
Unknown
The Conference Board will post their Leading Economic Indicators (LEI) for August, also at 10:00 AM ET. This index attempts to predict economic activity over the next three to six months. Forecasts have it showing a 0.4% decline, meaning the indicators are pointing toward weaker economic activity. The larger the decline, the better the news for mortgage pricing.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.