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Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Core Inflation Steady

 
The two big economic reports this week were released on Friday. Investors placed more weight on tame inflation data than on strong retail sales figures, causing mortgage rates to improve. Wednesday's minutes from the September 20 Fed meeting contained little new information and the reaction was small. As a result, mortgage rates ended the week a little lower.
 
In September, the Consumer Price Index (CPI), a widely followed monthly inflation indicator, posted its largest monthly increase since June 2009. This was mostly due to a hurricane-related 13% increase in gas prices during the month. 
 

However, most investors prefer to look at core CPI for a clearer indication of the underlying trend. Core CPI, which excludes food and energy, rose less than expected in September. While several other recent indicators have pointed to rising inflation, core CPI has held steady at an annual rate of 1.7% for five straight months. The tame core inflation data was good for mortgage rates.

 
Retail sales posted better than expected results in September, rising 1.6% from August. Car sales, in particular, were strong as people replaced vehicles lost in the hurricanes. Overall, though, it was difficult to determine the impact of the hurricanes. According to the Commerce Department, companies reported that "the hurricanes had both positive and negative effects on their sales data." Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator, so this report was good news for the economy. 
 
 
 
Looking ahead, it will be a light week for economic data. The housing sector reports will be featured. Housing Starts will be released on Wednesday and Existing Home Sales on Friday. Beyond that, Industrial Production will be released on Tuesday. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Hurricanes Affect Data

 
Over the past week, the major economic data and comments from an important Fed official were viewed as negative for mortgage rates. This was partially offset by Friday's report of possible plans for a long-range missile test by North Korea. As a result, mortgage rates ended the week slightly higher.
 
Much of the data in Friday's key Employment report was affected by the recent hurricanes. While the consensus forecast called for gains of 100,000, the economy lost 33,000 jobs in September. Job losses were seen mainly in the areas most affected by the hurricanes such as the restaurant industry. By contrast, wage growth rose far more than expected. Average wages were 2.9% higher than a year ago, up from an upwardly revised annual rate of 2.7% last month. This was the highest reading since December 2016. The wage figures likely received a boost from the hurricanes, since many of the lost jobs were lower paying ones. 
 

 

According to the Labor Department, the survey data used to calculate the unemployment rate was not affected by the hurricanes. The unemployment rate in September unexpectedly declined to 4.2% from 4.4% in August. This was the lowest level since February 2001. Investors reacted to the unemployment rate and wage data by pushing mortgage rates higher.

 

 
On Thursday, comments from Federal Reserve Bank of San Francisco President John Williams were more hawkish than expected. Williams thinks that the decline in inflation in recent months has been mostly due to factors which have just a "temporary effect." He believes that it will be appropriate to continue to raise the federal funds rate even if inflation remains low. His surprisingly strong support for tighter monetary policy caused mortgage rates to move a little higher. 
 
 
 
Looking ahead, Friday will be the big day for economic data with Retail Sales and CPI. Consumer spending accounts for about 70% of economic activity in the U.S., and the retail sales data is a key indicator. The Consumer Price Index (CPI) is a widely followed monthly inflation report. Before that, the minutes from the September 20 Fed meeting will come out on Wednesday. These detailed minutes provide additional insight into the debate between Fed officials and have the potential to significantly move markets. Mortgage markets will be closed on Monday in observance of Columbus Day. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 

Progress on Tax Plan

 
Additional threats from North Korea were positive for mortgage rates early in the week. However, the announcement of a tax reform plan on Wednesday was negative. The two events were roughly offsetting, and mortgage rates ended the week just slightly higher.
 
On Monday, North Korean officials said that they interpreted recent comments made by President Trump as a declaration of war. Investors reacted to this by shifting to relatively safer assets, including mortgage-backed securities (MBS). The increased demand for MBS caused mortgage rates to decline. 
 
The volatility seen this week continued on Wednesday, but the movement was in the opposite direction from Monday. It took place after President Trump released additional details about his proposed tax reform plan. If passed, this plan is expected to boost economic growth and to increase the budget deficit. Faster economic growth raises the outlook for future inflation, which is negative for mortgage rates. A larger deficit increases the supply of bonds, which also is bad for mortgage rates. 
 

In August, core PCE was just 1.3% higher than a year ago, down from an annual rate of 1.4% in July and from 1.9% in February. This is the inflation indicator favored by the Fed. Most Fed officials expect that inflation will gradually rise toward their target level of 2.0% over the medium term, but each additional month of low readings adds doubt that their forecasts are correct.

 
 
Looking ahead, the important monthly Employment report will be released on Friday. As usual, this data on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month. Before that, the ISM national manufacturing index will be released on Monday, and the ISM national services index on Wednesday. In addition news about North Korea or tax reform again could influence mortgage rates. 
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Fed Meeting and North Korea

 
Wednesday's Fed meeting was viewed as mildly negative for mortgage rates. 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. The streak of strong readings seen over the last three months may be at risk, however, 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. Durable Orders, an important indicator of economic activity, also will come out on Wednesday. The core PCE price index, the inflation indicator favored by the Fed, will be released on Friday. In addition, there will be Fed speakers every day next week including a speech by Fed Chair Janet Yellen on Tuesday.
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 

 
 

Compliments of

Philadelphia Mortgage Advisors

Phone: 610.834.8700

600 W. Germantown Pike | Suite 270

Plymouth Meeting, PA 19462

 

Philadelphia Mortgage Advisors is a licensed mortgage lender by the PA Department of Banking & Securities, NJ Department of Banking and Insurance, the State of DE and the Florida Office of Financial Regulation. NMLS #128570.

       

 
 

Hurricane Effects

 
Early in the week, good news regarding North Korea impacted mortgage rates. The economic data caused little reaction. Mortgage rates ended the week higher, up from the best levels of the year.
 
In recent weeks, investors have reacted to news about North Korea in the expected fashion. Each time North Korea has conducted a missile test, investors have shifted to relatively safer assets, including mortgage-backed securities (MBS). The added demand has been positive for mortgage rates. As the North Korean government celebrated its 69th anniversary last weekend, many investors had expected another missile test. When this did not occur, investors took the reverse action on Monday. They added riskier assets to their portfolios, which was negative for MBS and mortgage rates. On Friday, however, investors broke from the recent trend and showed surprisingly little reaction to another missile launch.
 

Two big economic reports released on Friday fell well short of the expected levels. Retail sales in August fell 0.2% from July, below the consensus for a small increase. Auto sales dropped sharply from July, partly due Hurricane Harvey. Estimates of vehicles destroyed by the storm are around 300,000, though, which should boost auto sales in coming months. 

 
Industrial production posted a much bigger miss with a decline of 0.9% from July, well below the consensus for a small increase. However, the Federal Reserve attributed nearly all of the drop to the effects of the hurricane, so there was little market impact. 
 
It is difficult to know what effects the hurricanes will have on economic activity. Some areas will look weak now due to the storms, but the rebuilding efforts will boost activity in the future. As a result, investors likely will not react much to individual reports for some time. Instead, they will look at the results over a longer time frame to try to judge the underlying strength of the economy.
 
 
 
Looking ahead, the next Fed meeting will take place on Wednesday. Investors widely expect the Fed to announce that it will begin to reduce the quantity of Treasury and mortgage securities on its balance sheet. In addition, Housing Starts will be released on Tuesday and Existing Home Sales on Wednesday.
 
 
All material Copyright © Ress No. 1, LTD (DBA MBSQuoteline) and may not be reproduced without permission.
 
 
 

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