Last week mortgage rates stabilized. Freddie Mac’s Primary Mortgage Market Survey found the average rate on a 30-year fixed-rate mortgage to be 3.45% with 0.5 points, up 3 basis points from last week. There was little domestic economic data of import last week, few developments from a global perspective, trading volumes were subdued, post-Brexit worries seem to have dissipated for the time being, and we’re right in the heart of vacation season.
All that was a long way of saying that not much happened last week, and interest rates generally stayed in the same range throughout the week. Yields on 10-year Treasuries pretty much sat between 1.55-1.60% after rising by about 15 basis points the week prior. This morning yields are around 1.58%. There is the distinct risk that we might see mortgage rates rise this week if the Fed takes a more hawkish posture than anticipated.
Click here to get today’s latest mortgage rates.
Today’s economic data:
Today is the calm before the storm, there is a lot of data throughout the rest of the week. But today, our only data point of any significance comes from the Dallas Fed Manufacturing Survey for July. The results of the survey come out at 10:30am, and have been very volatile lately.
The week that was:
Rates plateaued last week, as I said above. So very little happened (from the perspective of our markets) that this section is superfluous, and we might as well move on.
Looking ahead:
It’s a busy week. In addition to a slew of economic data throughout the week, we hear from the Fed on Wednesday afternoon. Nobody expects that the Fed will hike at this meeting. That’s pretty much off the table. What is unclear is whether or not the Fed will set the stage for a hike in the coming meetings. If you follow the Fedspeak, there’s a pretty clear schism between the hawks and the doves (well, there always is, but it seems to be more apparent now than any time within recent memory). At question is whether or not low interest rates could cause financial instability in the form of an asset bubble and whether or not the risk of an asset bubble is greater than the risk of raising rates and potentially snuffing out economic growth.
I won’t pretend to know the answer to that question. I know that while some measures of inflation are trending upward, one measure that the Fed closely monitors – I’m sure they monitor all of them – the Core PCE Index has remained relatively flat, and below the Fed’s target rate of 2%. I’m also pretty sure that inflation is not really sustainable unless wages are growing. And while it’s picked up a bit of late, wage growth remains pretty sluggish. There is plenty to back up the dovish position that rates should remain where they are for the time being.
The flipside is that domestic economic data has been relatively decent of late, and after a brief freak-out, the markets have shrugged off the Brexit repercussions, whatever they may be. And there’s always the tired shibboleth that runaway inflation is just around the corner. That argument has been wrong for at least five years now, but that doesn’t stop various Fed members from trotting it out periodically. I don’t personally think it is appropriate to hike right now*, but there is an argument to be made for a hike.
For what it’s worth, the current implied probabilities of Fed hikes in the remaining meetings are:
- July: 2.4%, down from 3.6% the day before
- September: 20%, up from 15.1% the day before
- November: 21.6%, up from 16.9% the day before
- December: 46%, up from 44.6% the day before
*My opinion on monetary policy is worth exactly what you paid for it.
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What’s the takeaway for rates this week?:
This is hardly groundbreaking insight, but the Fed announcement on Wednesday poses a risk to rates. I think that it is more likely than not that the Fed statement will be a little on the hawkish side, or at least more hawkish than prior statements. In the event this happens, the market will start pricing another hike into bond prices, and rates will rise. It wouldn’t shock me to see yields on 10-year Treasuries to rise to pre-Brexit levels (around 1.70%) if this happens, and I could see mortgage rates moving accordingly.
Basically, if I were thinking about refinancing, I’d make some phone calls on Monday and potentially lock a rate in before Wednesday afternoon if it made financial sense for me to do so. If you’re buying a new home, there’s obviously a lot more factors in play with regard to timing, but I would still make an effort to act sooner rather than later.
Don’t wait for rates to rise. Start your mortgage process now.
One more thing:
Tweet of the week:
Godwin’s Law is overthrown. A reality of American fascism overtakes dry rhetorical measure. The question now is whether good men do nothing.
— David Simon (@AoDespair) July 22, 2016
Notable events this week:
Monday:
- Dallas Fed Manufacturing Survey
Tuesday:
- S&P/Case-Shiller Home Price Index
- New Home Sales
- Consumer Confidence
- Richmond Fed Manufacturing Index
Wednesday:
- Durable Goods Orders
- EIA Petroleum Status Report
- FOMC Announcement
Thursday:
- International Trade in Goods
- Weekly Initial Jobless Claims
- KC Fed Manufacturing Index
Friday:
- GDP
- Chicago PMI
- Consumer Sentiment
from Total Mortgage Underwritings Blog http://ift.tt/2aFvpCM
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