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Mortgage Rates Moving Higher

Mortgage Rates Move Higher

Investors grew more optimistic about US economic growth and less concerned about Europe this week. This helped the stock market rally during the week. For mortgage rates, though, this news was not favorable. After reaching new lows early last week, mortgage rates continued to move higher this week.

Following last week’s stronger than expected Employment data, the biggest economic report this week also exceeded expectations. September Retail Sales increased 1.1% from August, which was above the consensus forecast of 0.6%. In addition, the FOMC Minutes from the September 21 Fed meeting revealed that Fed officials expect the economy to avoid recession. In recent weeks, investors have been gradually upgrading their economic outlook. Stronger growth is good for the economy, but it increases inflationary pressures, which is negative for mortgage rates.

Declining investor concerns about European debt problems heavily influenced US financial markets again this week. During the week, European officials reassured investors that the consequences of a Greek default would not spread to other countries or to European banks. In addition, the last of the European Union members voted to approve a major aid package. Finally, Germany and France announced that they will present a comprehensive aid package at a summit on October 23. Investors reacted by reversing the flight to safety trade, meaning that they returned to riskier assets such as stocks and shifted out of relatively safer assets such as bonds.

Also Notable:
• Weekly Jobless Claims remained a little above the 400K level
• The Fed purchased $5.2 billion in MBS during the week ending 10/12
• The Fed’s Plosser does not expect the economy to enter a recession
• Oil prices moved higher and reached $87 per barrel

Average 30 yr fixed rate:
Last week: +0.20%
This week: +0.10%

Stocks (weekly):
Dow: 11,600 +400
NASDAQ: 2,650 +150

Week Ahead
The most significant economic data next week will be the monthly inflation reports. The Producer Price Index (PPI) focuses on the increase in prices of “intermediate” goods used by companies to produce finished products and will come out on Tuesday. The Consumer Price Index (CPI), the most closely watched monthly inflation report, will come out on Wednesday. CPI looks at the price change for those finished goods which are sold to consumers. In addition, Industrial Production, an important indicator of economic growth, will come out on Monday. Housing Starts and the Fed’s Beige Book will be released on Wednesday. Existing Home Sales, Philly Fed, and Leading Indicators are scheduled for Thursday.

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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.