Fed minutes reveal split

Once again, the biggest influence on mortgage rates was shifting sentiment about future Fed policy. The Fed Minutes and statements from Fed officials caused investors to move forward their expected timing for scaling back the bond purchase program. As a result, mortgage rates ended the week a little higher.

The Minutes from the October 30 Fed meeting released this week revealed a great deal of disagreement among Fed officials about when to change policy. Just last week, testimony from the nominee for the next Fed Chief, Janet Yellen, encouraged investors that the Fed will not begin to scale back its bond purchases any time soon. In contrast, what emerged from the Minutes is that a number of Fed officials expect improvement in the labor market to warrant tapering to begin “in coming months.” The added demand for mortgage-backed securities (MBS) from the Fed has been a major factor in keeping mortgage rates low, and any signs that the Fed may begin to taper either sooner or later have consistently caused significant movement in mortgage rates. The unexpectedly hawkish tone of the Fed Minutes offset the dovish comments from Yellen, leaving mortgage rates roughly unchanged over the two-week period.

The October Existing Home Sales report released this week showed a drop of 3% from September. There were a number of reasons for the decline, including the government shutdown which took place during the first half of the month. Even with the decline in October, Existing Home Sales were still 6% higher than one year ago. The housing sector has been an important source of strength for the economy this year, so investors will be closely watching next month’s data.

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