Last week mortgage rates hit 3-year lows according to Freddie Mac’s Primary Mortgage Market Survey. The survey showed the average rate on a 30-year fixed-rate mortgage to be 3.57% with 0.5 points, down from 3.61% with 0.6 points the week before. Bonds rallied throughout the week, causing rates to fall. Ten-year Treasury yields were around 1.80% to begin the week, and are now floating around 1.74%. Why did bonds rally? Well, stocks fluctuated, but were approximately flat on the week, so I don’t think the rally was a reaction to equity movement. There was a paucity of economic data, but what was issued was on the weakish side, with the notable exception of Friday’s retail sales report. On the whole, I don’t think the data had much impact. There was a slew of Fedspeak, which was mixed in tone. At this point there is such a divergence between market sentiment and what the Fed is saying regarding rate hikes that I think hawkish Fedspeak is being tuned out. I’m left to believe that bonds rallied due to several successful Treasury auctions, a carryover in momentum from the week before, and probably some good old fashioned randomness.
Whatever the case may be, the rate environment remains very, very favorable for borrowers, although rates are under upward pressure this morning.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There’s a few data points today – not especially influential ones – but we proceed nonetheless:
- The Empire State Manufacturing Survey cratered in May. The expectation was for a reading of 7, the reading came in at -9.02, down from 9.56 in April. New orders and inventories both fell, employment was up by a little. After two positive months, it looked like manufacturing conditions might be turning around, and now we get this report. We will watch the to see if this weakness follows through to the Philly Fed Survey on Thursday.
- The Housing Market Index reading for May was unchanged from April, coming in at 58. The consensus expectation was for a reading of 59. Housing has been one of the bright sports of the economy over the past year or more, and while its still growing, it has shown signs of decelerating in some reports.
The coming days feature quite a few reports that are more interesting than the above.
The week that was:
Last week was not particularly eventful from a rate perspective. There was a lot of bond issuance, both from the Treasury and from corporations, and the markets didn’t have any problem accommodating the increased supply.
There were three notable economic reports last week. Weekly jobless claims spiked to the highest level since February 2015, but this is most likely just an aberration. A Bloomberg article notes that “A jump in filings in New York state may reflect striking workers at Verizon Communications Inc., spring break holiday at schools or a combination of the two. Economists will continue to monitor claims data in the coming weeks before concluding that the labor market is taking a bigger step back.” Probably not a big deal.
Retail Sales in April came in much better than expected, showing a 1.3% month-over-month gain. This is a significant rebound from March, when sales were down -0.3%. There was strength across the entire report, so this is not driven by a particular sector or anything. One presumes that sustained growth in retail sales would give the Fed more ammunition for a potential rate hike.
On the other hand, the Producer Price Index didn’t show much in the way of inflation. The core number showed 0.3% month-over-month growth, but only 0.9% year-over-year growth. Not particularly robust. We get the Consumer Price Index data tomorrow.
Lastly, I think it is worth pointing out a speech from Boston Fed President Eric Rosengren. Rosengren is (or at least was) considered one of the doves on the Fed, but his speech had a fairly hawkish tone. As always, Tim Duy of Tim Duy’s Fed Watch has a fantastic write-up on the speech which I would recommend reading. I’d like to excerpt just one section from the speech: “In my view, the market remains too pessimistic about the fundamental strength of the U.S. economy, and the likelihood of removing monetary accommodation is higher than is currently priced into financial markets based on current data.”
The implied probability of a hike in June is just 4%, and 20% in July according to Fed Funds futures prices. We have to look all the way out to December to see the probability of a hike rise above 50%. The Fed keeps trying to claim that June is a live meeting, and the markets are simply not buying. Eventually, something is going to give here. The Fed is losing credibility, and they know it.
Don’t wait for rates to rise. Start your mortgage process now.
Looking ahead:
There’s quite a bit of influential data in the coming week. We get a dataon housing, manufacturing, inflation from the consumer perspective, the minutes from the last Fed meeting, as well as a little bit of Fedspeak. I’m hard-pressed to say what will happen with rates next week. Bonds have rallied quite a bit over the last few weeks, and it wouldn’t surprise me at all if we saw that momentum reverse due to profit-taking. If the Consumer Price Index on Tuesday could pose a little bit of risk. If inflation appears to be on the rise, the expectation of a rate hike in the near(ish) term could be bolstered, and we could see bonds sell-off.
Click here to get today’s latest mortgage rates.
What’s the takeaway for rates?:
Going by Freddie Mac’s survey, rates are at three year lows at 3.57% with 0.5 points on average. The lowest average rate Freddie ever reported was 3.31% with 0.7 points, and that was back in 2012 when the Fed was providing massive amounts of stimulus to drive down interest rates (they still are providing a lot of stimulus, but less so than back in 2012).
Rates could certainly improve further. I think it is highly unlikely that they will do so in any significant manner, but it is possible. I think we’d need to see the economy re-enter recession, or possibly some catastrophic world event in order to see a bond rally large enough for rates to touch all-time lows. I don’t have a crystal ball, but I don’t see this as being likely. It may take quite a while, but I think it is more likely that rates increase slowly over time.
I strongly advise you against trying to time the market. If it makes financial sense to get a new mortgage now, do it. Pick up the phone to see if you could save money on your monthly payments or cut down your loan term (this assumes you didn’t originate your mortgage back when rates were at all time lows). If you’re looking to buy a new house, your timing is great.
Now for something completely different:
Via Longform.org, the Tampa Bay Times investigates why the police are summoned to Walmart so frequently. “Walmart: Thousands of Police Calls. You Paid the Bills.” Pretty fascinating reading: “Law enforcement logged nearly 16,800 calls in one year to Walmarts in Pinellas, Hillsborough, Pasco and Hernando counties, according to a Tampa Bay Times analysis. That’s two calls an hour, every hour, every day.”
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- Empire State Manufacturing Survey
Tuesday:
- Consumer Price Index
- Housing Starts
- Industrial Production
Wednesday:
- EIA Petroleum Status Report
- FOMC Minutes
Thursday:
- Weekly Jobless Claims
- Philly Fed Business Outlook Survey
Friday:
- Existing Home Sales
from Total Mortgage Underwritings Blog http://ift.tt/1ThISCw
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