Last week Freddie Mac’s Primary Mortgage Market Survey showed that mortgage rates hit three year lows as bonds rallied. That rally was short-lived. Bonds sold off yesterday, sold off last night, and are continuing to sell off this morning. On Monday morning, yields on 10-year Treasuries were as low as 1.70%. This morning yields are around 1.82%. Mortgage backed securities followed suit. Freddie Mac’s Primary Mortgage Market Survey comes out again tomorrow, and rates will likely be up 5-10 basis points on average.
In short, bonds sold off as a result of some hawkish Fedspeak (more on that later), stronger than anticipated domestic economic data yesterday, stronger than anticipated Japanese GDP numbers, maybe some profit-taking, and our old friends randomness and momentum.
Click here to get today’s latest mortgage rates.
Recent economic data:
There was a lot of data yesterday, and a little today:
- The April Consumer Price Index showed a little more inflation than expected. Headline CPI was up 0.4% from last month. The core CPI (which excludes food and energy costs) was up 0.2% month-over-month, and is up 2.1% on a year-over-year basis, just a smidge over the Fed’s 2 percent target.
- Housing starts and permits were both higher then expected in April. However, both starts and permits are down year-over-year. The housing sector is still relatively strong, but is showing signs of slowing across multiple reports.
- Industrial production and manufacturing both showed gains in April, and if oil prices continue to rise and the dollar weakens, we will see further gains in industrial production.
- The EIA’s petroleum status report showed that inventories of crude oil rose week-over-week, but gasoline and distillates are down. Oil prices are at highs of the year.
- The Minutes for the last Fed meeting come out at 2pm this afternoon.
This firm data is at least partially responsible for the sell-off in bonds over the past two days, and the subsequent rise in mortgage rates.
A little on the Fed:
The Fed is clearly not happy that the market is discounting the potential for a June rate hike. The market seems to be coming around at least a little bit. On Monday, the price of Fed Fund futures prices showed a 4% implied probability of a hike in June. This morning that number has risen to 19%. There’s been a slew of Fedspeak lately, and most of the speeches have emphasized that June is a “live” meeting. Tim Duy has a writeup here. It seems that the Fed is trying to jawbone rates higher without actually hiking. And it seems to be working to a degree.
I don’t think that the Fed will hike in June. I don’t think the economic data is strong enough to do so, although we’re getting closer to that point. I also cannot see any reason that the Fed would choose to hike just a few days before Britain might vote to leave the EU. If they do vote to leave, we could see considerable economic turmoil and volatility, and I don’t know why the Fed would want to add to that. Inflation may be rising, but it’s not going to get out of control over between the June and July meetings, when the Brexit vote will have safely passed.
That said, the Minutes from the last meeting could be hawkish, and could pose additional risk to mortgage rates.
Don’t wait for rates to rise. Start your mortgage process now.
What’s the takeaway for rates?:
Rates are up from earlier in the week, but still favorable. I keep beating the same drum: if I were looking for a new mortgage, I would not be sitting on the fence waiting to see if rates fall further. They could, but I think it is unlikely. Of course there will be short term fluctuations, but at some point the Fed is going to hike, and that will hike will likely be baked into bond prices ahead of the hike. The beginning of this process may be occurring right now.
Don’t try to time the market. If it makes sense for you to refinance now, I would do so. If something catastrophic happens and rates fall substantially, you can always refinance. If rates rise you have no recourse.
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/1qtS373
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