The last few weeks of December 2013 proved to be quite ones – with little newsworthy economic news and a light trading volume. Even though the economic data (on average) exceeded expectations – this proved to have little impact on mortgage rates.
After months of speculation by investors, on Dec. 18th the Fed announced that it would begin to scale back its bond purchases. Mortgage rates have been kept low , thanks in part to added demand for mortgage-backed securities (MBS) from the fed – so this reduction is not good news for mortgage markets as we continue to expect rising interest rates in 2014. It is to be noted however, that the announcement did not signal a change in mortgage rates immediately – so the Fed did a good job communicating its intentions to investors that they would like to keep rates relatively low this year.
Some of the reasons that the Fed has chosen to taper off at this time lie in the strength shown in the labor market, housing, manufacturing and other key areas. Nearly 200K jobs have been added over the past 3 months, and the 3rd quarter GDP rose from 4.1% to 2.5%. The GDP is the broadest measure of economic growth. Investors and Fed officials are entering 2014 with optimism of a solid improvement in the economy.
On January 10th, the December employment data was released and it was again positive. Positive Retail Sales and Housing figures followed that had a lot of attention from investors. The Fed meets again on January 29th, so this information will likely come into discussion. On January 6th, the new Director of the Federal Housing Finance Authority (FHFA), Mel Watt, was sworn in. His policies are expected to be more accommodating to housing finance than the ones put into place by outgoing director Edward DeMarco.
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