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Larry Bsharah


John Adams Mortgage

NMLS: 140012

Office: 248.208.3902Cell: 313.218.0317
Fax: 248.595.0990

25800 Northwestern Hwy

Suite 110

Southfield, MI 48230



Rates Improve on Weak Data

Weaker than expected retail sales and inflation data was favorable for mortgage rates this week. However, the Fed meeting was viewed as negative and offset some of the improvement. Mortgage rates ended the week a little lower, near the best levels of the year.

After rising gradually last year, inflation has been on a downward path so far this year. Wednesday's release of the core consumer price index (CPI), which excludes food and energy, continued this trend. Core CPI in May was just 1.7% higher than a year ago, which was lower than the 1.9% year-over-year rate of increase in April. Lower levels of inflation are positive for mortgage rates.

Later in the day on Wednesday, the Fed disclosed the results from its meeting, and investors viewed the news as negative for mortgage rates. One reason was that in the statement Fed officials maintained the position that the decline in inflation seen in recent months is just temporary. Most Fed officials still expect that inflation will climb to their target level of 2.0% in the medium term. Some investors had thought that the Fed would place more weight on the recent decline in inflation and slow the pace of monetary policy tightening.
In addition, the Fed provided more details at this meeting about its plan to reduce its holdings of U.S. Treasuries and agency debt and mortgage-backed securities (MBS). Investors viewed the pace of the reduction as a little more aggressive than anticipated, which contributed to a small increase in mortgage rates. Fed Chair Yellen said she expects to begin shrinking the size of the Fed's balance sheet "relatively soon" and will do so by no longer reinvesting all the principle payments received. The reduction will start at $10 billion a month and grow to $50 billion a month over twelve months. Approximately 40% of the reduction will be in the holdings of MBS. 
Looking ahead, it will be a very light week for economic data. Existing Home Sales will be released on Wednesday and New Home Sales on Friday. Speeches by Fed officials also may influence mortgage rates next week. 
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