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Little Change in Mortgage Rates This Week

European debt problems remained the primary focus this week, and shifts in sentiment caused a lot of volatility, but there was a lack of concrete news. The next decisions from European officials are expected to be revealed next week. The economic data released this week contained few surprises. As a result, mortgage rates ended the week with little change.

European officials are scheduled to meet this weekend and again next week, and they hope to release a plan for a comprehensive aid package by Wednesday. Officials are divided on what steps to take to help ease debt problems in troubled nations. With large countries such as Italy and Spain experiencing debt troubles, the potential cost of a bailout could be very high. It has been difficult to gain political support in the stronger countries, Germany and France, for aid to the weaker countries. For the countries that are at risk, it has been extremely difficult to implement the austerity measures required to receive aid, as the riots in Greece clearly demonstrate. Given the conflicting goals of the parties involved, the optimal solution is not clear. Whatever the outcome, it will likely have a significant impact on mortgage rates. A decisive plan to prevent the spread of debt problems could cause investors to reverse the flight to safety trade, leading to higher mortgage rates. On the other hand, a plan which disappoints investors could produce an increased flight to safer assets, causing mortgage rates to move lower.

The housing data released this week was mostly better than expected. September Housing Starts increased 15% from August to an annual rate of 658K units, far above the consensus forecast of 595K, and the fastest pace in 17 months. Nearly all the gains came from multi-family units, though. September Existing Home Sales fell 3% from August, which was close to expectations. The inventory of unsold existing homes declined 2% to an 8.5-month supply.

Also Notable:
• September Core CPI inflation was 2.0% higher than one year ago
• The Fed’s Beige Book reported modest growth in most regions
• The Treasury will auction $99 billion in 2-yr, 5-yr, and 7-yr securities next week
• The Fed’s Tarullo stated that buying MBS should be the first option used to boost the economy

Average 30 yr fixed rate:
Last week: +0.10%
This week: -0.02%

Stocks (weekly):
Dow: 11,700 +100
NASDAQ: 2,650 +25

Week Ahead
Next week, Durable Orders and New Home Sales will be released on Wednesday. Gross Domestic Product (GDP), the broadest measure of economic growth, will come out on Thursday, along with Pending Home Sales. Core PCE inflation and Personal Income will be released on Friday. Consumer Confidence and Consumer Sentiment will round out the schedule. In addition, there will be Treasury auctions on Tuesday, Wednesday, and Thursday. The results from the EU summit will be known by Monday morning, but European officials have suggested that the comprehensive aid package will not be revealed until later in the week.

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Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.