Did you know that economic reports can impact mortgage rates? And that some economic reports have a greater impact than others? Each month and each quarter, various government agencies release data they’ve been tracking on a regular basis. Investors and analysts alike predict these numbers and then react to them once the numbers are ultimately released. For example, New Home Sales is tracked, and the number of new homes sold for a particular month is released by the United States Census Bureau. A new home sale is logged when a sales contract is signed and an earnest money deposit made. A similar report is drawn up regarding existing home sales.
Inflation is another key element that investors pay attention to and one of the key reports the Federal Reserve reviews when the Federal Open Market Committee, or FOMC, meets every six weeks. One of the Fed’s responsibilities is to control the cost of funds and attempts to do so by raising or lowering the Federal Funds rate. Inflation is measured on the wholesale level, the Producer Price Index and at the consumer level, or the Consumer Price Index.
These various reports give us a look back at recent economic activity and can provide clues as to what might occur in the future. Investors can then allocate their portfolios to make adjustments based upon expectations. For instance, if an investor sees a solid jobs report indicating a growing economy, the investor might allocate more funds toward stocks and less so in bonds. Stocks have the potential to provide greater returns compared to bonds. Bonds do provide a return, but the yield is relatively low. Investors choose bonds for safety, not for solid returns.
Mortgage rates? Your typical 30 year fixed rate for a conforming loan tracks either the 30-yr FNMA bond or the FHLMC 30-yr bond. As the prices of either move, so too will interest rates. If an economic report is released such as the Unemployment Report and it shows that more people are out of work and wages are falling, investors take the cue and move more funds from stocks and back into the safety of bonds, including mortgage bonds. Conversely, if an economic report indicates a strengthening economy, investors may be more inclined to pull money out of bonds and back into the stock market.
When mortgage lenders set their rates each day they do so after a review of various indices. There really is a process lenders practice when setting daily mortgage rates and tracking mortgage bonds and Treasury prices is the primary method. When you get a quote today from your loan officer for a 30 year rate and then get another quote tomorrow and the rates are a little different, you can bet there was some economic data released that impacted the mortgage market.