Posted September 13, 2012

Mortgage Rates : Sinking On QE3, Ready For More Change Friday

Fed Funds Rate since 2000

Fed Funds Rate since 2000

Mortgage bonds rose +1 6/32 Thursday to reach a new, all-time high. The surge was sudden and commenced shortly after the Federal Reserve introduced new market stimulus meant to keep mortgage rates low for a long period of time.

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QE3 Supports Lower Mortgage Rates

QE3  is a go. The Federal Reserve announced Thursday that it will launch an open-ended program through which the central banker plans to make monthly mortgage bond purchases to the tune of $40 billion.

Unlike the original QE program from 2008 and QE2 from 2010 -- each of which were capped by a calendar date and dollar amount -- this year's QE3 was launched with no fixed end-date, and no particular size limit.

The Fed will keep buying mortgage bonds until it doesn't feel as if it needs to.

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With QE3, the Federal Reserve's plans to push down mortgage rates, thereby making homes more affordable for everyone. Via low downpayment mortgage programs such as the FHA 3.5% down program and refinance programs including HARP 2.0, today's home buyers and owners will benefit from lower mortgage rates and, therefore, lower monthly payments.

Fed Chairman Bernanke has said by stimulating home building and new home purchases, jobs can be created. Low mortgage payments also free up cash for discretionary spending, a major factor in U.S. economic growth.

Thursday morning, Freddie Mac announced that the average 30-year fixed rate mortgage rate was 3.55% for mortgage applicants will to pay 0.6 discount points plus closing costs. By Thursday afternoon, the same rate was available for zero points, and a closing cost credit of up to 40 basis points.

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Mortgage Rates Helped By Jobless Claims

Rising jobless claims helped mortgage rates Thursday, too. For the week ending September 8, 2012, initial jobless claims rose to 382,000 -- 12,000 more than predicted.

Hurricane Isaac is one of the reasons hy jobless claims surged last week. The storm has been connected to roughly 9,000 new jobless claims. Another factor is the rising number of claims is the wait-and-see positions some employers are taking ahead of potential tax code changes.

During today's press conference, Fed Chairman Ben Bernanke noted that the labor market remains weak overall, but part of that decline is cyclical. The Fed aims to help boost employment however it can, and is forecasting a national unemployment rate of 7.0% by the end of 2014.

The national Unemployment Rate is 8.1 percent currently.

The Producer Price Index was also released Thursday. Higher gas prices pushed August PPI to 1.7% -- well above consensus forecasts, However, Core PPI, a measurement which excludes volatile energy and food prices, came in as expected at 0.2%.

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Friday : Consumer Price Index, Retail Sales

Mortgage rates will rise the QE3 wave for most of Friday but several economic indicators could make a dent in pricing.

The first is the Consumer Price Index (CPI). CPI is a "cost of living" index, measuring the change in prices for items such as food, energy, clothing and education. CPI is an inflationary measurement. If it runs much higher than expected, mortgage rates may move higher.

Retail Sales and Consumer Confidence data are also on tap for Friday. Both can move mortgage rates in either direction.

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The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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