Rates Inching Up

There are no economic reports due for release today, but the big event will be the Federal Reserve's monetary policy statement that is set to be delivered at 2:00pm ET today. There will be no change interest rates as the benchmark Fed Funds Rate will remain at 0.25%. The markets will be looking for any hints on the current Bond purchase program that has been enacted by the Federal Reserve in an effort to keep interest rates low, spur on the economy and to promote job growth.

Over in the mortgage banking sector, the Mortgage Bankers Association reported today that its Market Composite Index, a measure of loan application volume, fell 3.3% in the latest week as home loan rates inched higher. Both the refinance and the purchase index fell by 3%. The ultra low home loan rates that were seen in the past year are now at their highest levels since the fall of 2011.

Rising Prices

Prices at the consumer level rose by 0.1% in May led by a rise in housing costs, electricity and natural gas. Within the Consumer Price Index (CPI) report it showed that food prices declined by 0.1%. On a year-over-year basis, CPI rose by 1.4%, the second lowest level this year aside from the 1.1% gain year-over-year in April. When stripping out volatile food and energy, the Core CPI rose by 0.2%, just above the 0.1% expected and rose 1.7% year-over-year, matching the year low in April.
The Federal Reserve members kick off their scheduled 2-day FOMC meeting this morning on Capitol Hill where the they gather to discuss monetary policy and the U.S. economy. There is zero chance of a hike in the Fed Funds Rate, which is currently at 0.25%. The talk will most likely surround the onging Quantitative Easing III program, which is geared towards promoting job growth and stimulating the economy by lowering interest rates by way of purchasing massive amounts of Bonds each month...$85 billion to be precise.
The housing markets received some mixed news today. The Commerce Department reported that Housing Starts rose by 7% from April to May to 914,000 units on an annualized basis, but below the 950,000 that was expected. In addition, there was a 28.6% increase from May 2012 to May 2013. Building Permits, a sign of future construction, fell by 3% last month from April to 974,000 and below the 983,000 that was projected.
And the good news kept on coming for housing as Standard & Poor's (S&P) reported that home prices will continue to rise, but it may not be the double digit gains that the market has seen. S&P does see housing starts rising by 28% in 2013 and 29% in 2014.

Housing News

Housing news, RealtyTrac reported today that foreclosures rose by 2% in May from April, but the good news is that foreclosures have fallen 28% from May of 2012. Foreclosure starts also rose in May by 4%, but are down 33% from a year ago.

Positive Equity

A percentage of homeowners that were underwater on their mortgages saw property values rise in the first quarter of 2013 as the housing sector continues to recover due to rising home values. CoreLogic reports that 850,000 residential property owners moved into positive equity in the first three months of this year. There are now 39 million properties in a state of positive equity across the nation. CoreLogic is a leading provider of consumer, financial and property information, analytics and services to business and government.

Mortgage News

Capital Markets around the globe are falling today as investors rethink the longevity of the current stimulus program dubbed Quantitative Easing III. The program was put into place to spur on the economy and to promote job growth by lowering interest rates. The Federal Reserve has been lowering rates by purchasing $40 billion in Treasury securities and $45 billion in Mortgage Backed Securities each month.

The shareholders of Fannie Mae and Freddie Mac have filed a lawsuit against the U.S. government on the grounds that the placement of two government-sponsored enterprises, or GSEs, into conservatorship by the government was beneficial to the economic well being of the country, but just about wiped out any value of Fannie and Freddie's common and preferred stock. The U.S. bailed out the two GSEs to the tune of a total of nearly $190 billion and suspended their dividends. At the end of 2012, Fannie and Freddie's share price had plunged to 26 cents.

Mortgage and Housing Update

The housing sector continues to see positive news as home prices rose annually and month-to-month led by tighter supplies and pent-up buyer demand. CoreLogic reported today that home prices, including distressed sales, rose by 12.1% from April of 2012 to April of 2013 and jumped 3.2% from March to April. It was the largest annual gain since February of 2006. In addition, 33 large metro areas saw double digit increases annually while all states showed annual price appreciations for non-distressed sales.
The debate of whether or not to taper the monthly Bond purchases by the Federal Reserve (the Fed) has been a hot topic since the beginning of May. The Fed is currently purchasing a total of $85 billion per month in Treasury and Mortgage Backed Securities in an effort to boost the economy, reduce long-term interest rates and promote job growth. Just yesterday, San Francisco Federal Reserve President John Williams said that an improving U.S. economy would the lead the Fed to pullback on the buying and it could happen by the time the summer ends. However, if inflation continues to run low and actually decrease from current levels, it would be a catalyst to increase the Bond buying program.
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