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Daily Market Watch for Friday, February 23, 2018 (Courtesy of Larry Baer and Market Alert )
Short Term Trend (5 days or less): Favors steady rates and steady to perhaps fractionally higher prices. Trading is expected to be tightly range-bound and choppy.
Long Term Trend (6 days or more): Favors higher rates and lower prices.

Looking back on the week -- even in the face of enormous debt supply coming into the credit market from the Treasury Department -- mortgage interest rates initially made an effort to move fractionally lower. The effort was gaining a little momentum through Wednesday afternoon, but a price whipsaw created by the release of the minutes from the Federal Open Market Committee’s late January meeting stopped the rally attempt in its tracks.

As expected, the minutes did not contain any sign the Fed was planning on increasing the number of 25 basis point rate hikes currently “on the board” from three to four in 2018.

The first reaction from investors was one of relief – but the fear mongers quickly overwhelmed the otherwise placid marketplace with their drum pounding and shouts of, “yea, but what if they do?’

After mortgage interest rates were shoved rudely higher and stock prices fell into a hole precipitated by a knee-jerk reaction calmer, cooler heads concluded that while the Fed did note evidence of stronger economic growth in their January monetary policy discussion -- the economy is just now approaching the pre-recession levels of 2007 – a recovery that was only made possible by over $4 trillion of direct investment by the Fed and the lowest interest rates in a generation.

As I write mortgage interest rates have generally fluttered back to levels where they began the week.

Slowly but surely more investors are now beginning to get on board with the idea Fed Chairman Jerome Powell and his fellow central bankers are likely to be slower to pull the rate hike trigger rather than faster. The market has priced in a near 100% chance the Fed will tighten by 25 basis points at the conclusion of their upcoming two-day meeting on Wednesday, March 21st -- but the probabilities of another rate hike this year according to the CME Fedwatch tool is 50/50 or less (http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).

The economic calendar is vacant today.

Looking ahead to next week’s schedule of economic news – things will get started on Monday with the release of the January New Home Sales report.

Tuesday brings the January Durable Goods Orders report which will be followed on Wednesday by the first revision to the government’s guesstimate of fourth-quarter Gross Domestic Product.

The January Personal Income and Spending report together with its key “core” personal consumption expenditure index component will capture mortgage investors attention on Thursday morning which will be followed later in the day by the private Institute of Supply Management’s Manufacturing Sector Index.

Of all the reports on this week’s economic calendar, none will likely have a more significant impact on the current trend trajectory of mortgage interest rates than will the “core” personal consumption expenditure index (a component of the January Income and Spending report).

The “core” PCE index is one of the Fed’s preferred measures of inflation pressures at the consumer level. Most economists expect the core PCE index to edge up a tick from December’s gain of 0.2% -- to an increase of 0.3% in January. Mortgage investors won’t necessarily be happy with the upward tilt in inflation pressures on Main Street – but they can live with it. In the off-chance the core PCE index posts a reading of 0.4% or more -- look for the surge in inflation pressure to send mortgage interest rates notably higher from current levels.

Speaking of the Fed -- newly appointed Federal Reserve Chairman Jerome Powell will be on Capitol Hill on Tuesday and Wednesday to present the central bank’s assessment of economic conditions -- first to the House Financial Services Committee with an encore performance before the Senate Banking Committee.

Investors of every description will be tuned in to hear the Fed’s assessment of economic conditions – and what, if any change that assessment might have on the expected pace of Fed rate hikes in 2018.

The general assessment among mortgage investors is that Powell will walk a very thin line and will make a concerted effort to say nothing of consequence. If he is successful in that effort, his appearance will probably be a non-event as far as its potential impact on the current trend trajectory of mortgage interest rates.

On the other hand, if he says anything that can be interpreted by mortgage investors as an indication the Fed currently sees reason(s) to take a more aggressive posture with respect to pushing short-term benchmark rates higher than most market participants now expect – mortgage investors are almost sure to respond by shoving prices lower and mortgage rates higher.
Rates Last Updated 2/23/18, 9:33 AM CST 
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  *Rates and terms are subject to change at any time and certain variations, restrictions, or improvements may apply based on creditworthiness, loan amount, property type, etc. APR's do not include mortgage insurance which may be required for LTVs greater than 80%, or closing costs from undetermined third parties including the title company.
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Houston:Jim Norris (RMLO #304627)
12010 Miramar Shores Dr
Houston, Tx 77065
(281) 970-1082 ext 1
(866) 717-4556 ext 1
Houston:Ellen Roloff Norris (RMLO #304630)
12010 Miramar Shores Dr
Houston, TX 77065
281-970-1082 ext 2
866-717-4556 ext 2
Brenham:Gayle Valentine-Hill (RMLO #298234)
Brenham:Sandra Starnes (RMLO #298126)
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