Market News Update - Rise of Mortgage Rates Slow Housing Market Down

The stock market has been on a moderate decline for the week based upon the lingering comments from Ben Bernanke as well as the ADP Employment Report coming worse than expected.  Fed Chairman Bernanke last week commented that the Fed is moving closer to ending or reducing the bond buying program which is keeping interest rates artificially low.  Although the Chairman did not say when the Fed would taper the program down, the fact that consideration to ending the program is growing, investors are selling their bond holdings which is driving up yields.

On top of the Feds comments, the ADP Employment Report came in with lower employment numbers than most experts predicted.  The consensus prior to the report was that hiring in the private sector increased 171,000.  The report came in much lower at 135,000.  Additionally, last month’s figures were revised downward from 119,000 down to 113,000.  Expectations are that the national employment report will show an increase in the labor force of 167,000 with the unemployment rate to remain at 7.5%.  One thing which we can be pretty sure of is that if the report comes in better than expected, mortgage rates will rise sharply.  The report is to be released Friday at 8:30AM EST which is after the release of this newsletter.

The recent rise in mortgage rates has impacted mortgage applications dramatically.  Purchase applications declined for the prior week by 2%; however, refinance applications declined a whopping 15%, which is on top of the prior week’s 12% decline.  Experts at this point are not expecting any significant reversal in mortgage rates and the trend of rising rates is likely to continue.

The economy is no longer reeling from the recession and economic reports are getting stronger little by little each month.  With every good report, the odds on the Fed slowing down their bond purchase program increases.  Mortgage rates in many states are over 4% at this point.  Although rates are still incredibly low, borrowers have gotten used to seeing rates in the low to mid 3% range, so anything above that appears high.  Like everything else, consumers will get used to seeing mortgage rates in the 4’s and accept it.  We have gotten used to high unemployment, absurd government spending, and political scandals everywhere.  Getting used to higher mortgage rates will be easy.

It’s a good sign that the auto industry, especially the foreign automakers, BMW and Mercedes, plan to keep production running through the summer for most models, which goes against the usual tradition of stopping production during the summer months.  U.S. automakers have also experienced growth in car sales; however, they have not made any announcement regarding summer production plans.

Economic reports for next week are:

• Wednesday June 12^th - MBA Report and 10 Year Note Auction
• Thursday June 13^th - First Time Jobless Claims and Retail Sales
• Friday June 14^th – Producer Price Index and Industrial Production

 I appreciate your business and look forward to talking to you soon! Have a great day!!!
 

Sincerely,

Cindy Tomlinson
Loan Officer

USLending Company

DRE Lic # 01520422
NMLS # 214851   

 

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