Big Week Ahead

Ahead of next week's FOMC meeting and election results, mortgage rates have been very volatile. Rising rates early in the week were partially offset by improving rates later in the week. In the end, mortgage rates finished the week just a little higher.

At its next meeting on Wednesday, the Fed is expected to announce a new program to purchase Treasury securities (quantitative easing) to boost the economy. Based on comments from Fed officials, investors expect the Fed to purchase roughly $100 billion of Treasury securities per month. However, the most important question, the total size of the program, is still not known, and investors are very divided in their predictions. The middle ground of the forecasts calls for the Fed to commit to a minimum of $500 billion to $1 trillion. The program is positive for mortgage rates in some ways including added demand for mortgage-backed securities (MBS), but negative in terms of potentially raising future inflation levels. Whatever the Fed decides, investor expectations are so divergent that mortgage rates are likely to be highly volatile after the news.

The housing sector data released during the week was generally better than expected. September Existing Home Sales rose 10% from August. Inventories of unsold existing homes fell 2% to a 10.7-month supply. First-time buyers purchased 32% of homes. Distressed homes accounted for 35% of sales. September New Home Sales rose 7% from August. The inventory of unsold new homes fell to the lowest level since 1968.

Also Notable: Third quarter GDP increased a little to a 2.0% annual rate Weekly Jobless Claims declined to the lowest level in three months September Durable Orders posted the biggest increase since January The G20 nations will try to maintain trade balances at "sustainable" levels