Daily Commentary by Larry Baer: In my opinion, this afternoon's 2:00 p.m.
ET release of the minutes from the Federal Open Market Committee will likely be
this week's "wild card".
Mortgage investors
will scour the minutes for clues to the future of the Fed's mortgage-backed
security purchase program. The Fed said in January they will begin
throttling back their quantitative easing initiative when/if the national
jobless rate drops to 6.5% and/or the annualized pace of core inflation at the
consumer level creeps meaningfully over 2.5%. As it stands now, the Fed
has lots of "wiggle room" and the likelihood of curtailment remains
exceptionally low -- the national jobless rate is currently running at 7.9% and
the annualized core inflation rate is hovering around 1.9%. It will
take an almost miraculous improvement in the pace of economic growth through
the end of the third-quarter to really raise the likelihood of a suspension of
the Fed's bond and mortgage-backed security purchase program to meaningful
levels. The probabilities are high today's event will exert little,
if any, noticeable impact on the current trend trajectory of mortgage interest
rates.
The mortgage market
was unfazed by data from the Commerce Department showing groundbreaking on new
homes fell by a surprising 8.5% in January. Starts for structures with at
least two units fell by 24% while starts for singe-family homes ticked up 0.8%
to its highest rate since July 2008. Permits for single-family homes rose
by 1.9% while permits for structures with at least two units posted a gain of
1.5%. It appears most investors view the January plunge for housing
starts as more a weather issue than an indication of a sharp slump in demand.
In a related report,
the Mortgage Bankers of America said mortgage applications declined 1.7% during
the week ended February 15th. Refinance and purchases both
fell for the second consecutive week.
On a four-week
moving average basis, refinance activity has advanced by 3.4% over the past
month, but is virtually unchanged from February 2012. Purchase loan
demand has risen by 4.4% over the past month and nearly 1.8% from year earlier
levels. After a healthy start to the year, mortgage application volume
has retreated in three of the past four weeks. For the week ended
February 15th, refinance applications accounted for 77% of all
applications and 72.5% of the prospective loan volume.
The contract rate for
30-year conforming mortgages rose by 3 basis-points to 3.78%. The
interest rate is 16 basis points higher from four weeks ago, but still 31
basis-points lower that this time last year.
THE
MARKET IS ALWAYS RIGHT! . YOU AND I ARE SOME OF THE TIME
