This week's mortgage update from Stuart Crawford at V.I.P. Mortgage:
Unexpected events outside the U.S. had
the greatest influence on mortgage rates last week. Violence in the
Middle East and economic concerns about Europe caused investors to shift to
safer assets, helping mortgage rates. Bond
friendly comments from the Fed added to the improvement, and mortgage rates
ended the week lower.
During periods of uncertainty, investors commonly reduce the risk in their portfolios. Generally, they shift from riskier assets such as stocks to relatively safer assets such as gold or U.S. guaranteed bonds, including mortgage-backed securities (MBS). Added demand for MBS helped mortgage rates to improve this week as investors were confronted with concerns on two fronts. Violence in Israel caused tensions in the Middle East to increase. In addition, there were signs that the largest bank in Portugal may default on its debt. This caused investors to question the level of reserves held by the banks in Europe and the outlook for economic growth in the region.
The news from the Fed was also favorable for mortgage rates. There were no big surprises in the FOMC Minutes from the June 18 Fed Meeting and no new guidance on the timing of the first fed funds rate hike. The positive news for mortgage rates came as the Fed provided a little more detail on its plans for its mortgage-backed securities (MBS) portfolio. The Fed's portfolio has been growing at a scheduled pace as the Fed has been reinvesting principal payments received and adding new MBS. The Minutes indicated that the purchases of new MBS will end in October as expected. After that time, the Fed plans to continue to reinvest principal payments received, which will hold the size of its portfolio steady, at least until the first fed funds rate hike. Principal payments have been averaging $16 billion per month, so investors were pleased that the reinvestment will continue for quite a while, as the added demand for MBS helps keep mortgage rates low.
This week, investors will continue to monitor events in Europe and the Middle East. The biggest U.S. economic report will be Retail Sales, which will be released on Tuesday. Retail Sales account for about 70% of economic activity.
Stuart can be reached at 602.710.8975