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Mortgage and Economic Update 3.15.2016

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Blog by Doug Ingersoll | March 15th, 2016

From Stuart Crawford at VIP Mortgage:

The big event last week was Thursday's ECB meeting (European Central Bank – the Euro version of our Fed).  The stimulus measures announced by the ECB made investors more willing to own riskier assets such as stocks, which was negative for safer assets such as bonds.  The small amount of U.S. economic data released had very little impact and as a result, mortgage rates ended the week higher. 
The ECB added to its stimulus program to help boost economic growth and raise inflation.  The actions included cutting key interest rates and increasing the size of its asset purchase program to 80 billion euros each month from 60 billion previously.  Increased demand for bonds from the ECB helps keep down yields around the world, including U.S. mortgage-backed securities (MBS).  These measures were essentially in line with investor expectations.  However, the effect on mortgage rates was already “baked in” by investors, so there was no correlating improvement last week.  (Meaning, investors predicted this would happen, so rates moved on this earlier)
The ECB also announced other changes designed to help the banking sector, and these were unexpected.  These measures made riskier assets such as stocks more appealing to investors.  When investors show a preference for adding risk, they often reduce their exposure to safer assets, including MBS, which is not good for mortgage rates. 
While recent readings have shown that inflation is rising, one area has continued to exert downward pressure.  The cost of imported goods dropped in February for the eighth straight month.  A big reason for this has been the decline in the price of oil.  Even excluding oil, the cost of other imported goods has been dropping.  Lower prices for imported goods reduce inflation, which is positive for mortgage rates.
Looking ahead, there will be a Fed meeting and press conference on Wednesday.  No change in the federal funds rate is expected, but the comments from the Fed could have a significant impact.  Before that, Retail Sales will be released on Tuesday. Consumer spending accounts for about 70% of economic output in the U.S., and the retail sales data is a key indicator.

Stuart can be reached at 480.776.2954

And from Elliott Pollack and his Monday Morning Quarterback economic analysis:

As of January, Arizona had 78,100 more nonfarm jobs than a year earlier.  This is a 3.0% gain.  In absolute terms, the largest gains were in educational and health services, professional and business services, trade, transportation and utilities and financial activities.  In percentage terms, the leaders were information, financial activities and construction.

Greater Phoenix employment was up 3.6% (67,100 jobs) from a year ago.  This is a strong number relative to this cycle.  Greater Tucson was up 2.2% (8,100 jobs).  This indicates a general acceleration in the employment picture in the state.

The statewide unemployment rate in January was 5.6% compared to 5.9% in December and 6.4% a year ago.  The U.S. unemployment rate is 4.9%, down from 5.7% a year ago.  The unemployment rate in Greater Phoenix declined to 4.6% and Tucson's was 4.9%.  While this is still high for this point in the cycle, it still shows considerable improvement.

According to CoreLogic, the percent of mortgaged homes with negative equity in Arizona as of the 4th quarter of 2015 was 14.0%, down from 18.7% a year earlier. The percent with near negative equity (5% of less) declined to 3.0% from 3.7% a year earlier.  Yet, 22.8% of homes in the state with mortgages were still under-equitied (homeowners that have less than 20% equity in their home) compared to 22.9% a year ago.