Well. That was quite a week. Mortgage rates are hovering just a few basis points above all-time lows, according to Freddie Mac’s Primary Mortgage Market Survey. The average rate on a 30-year fixed-rate mortgage fell to 3.48% with 0.5 points. As per usual, it is worth a reminder that the survey results are issued on Thursday, but the responses are collected earlier in the week. Bond rallied throughout the week, with yields on both 30-year and 10-year Treasuries hitting all-time lows early Friday morning. That’s going back to 1790. The reason for this, in the event you have been living under a rock, was that voters in the U.K. voted to leave the E.U. on June 23rd. The markets freaked out. On Friday afternoon Treasuries sold off a bit, with yields rising to the 1.45%-ish neighborhood. Last night bonds rallied again, and 10-year yields are once again testing all-time lows.
Bottom line: mortgage rates are historically low. If you have a mortgage, you should absolutely investigate refinancing to see if you could save money or shorten your term.
Click here to get today’s latest mortgage rates.
Today’s economic data:
The data was pretty good last week, and for our purposes, it didn’t matter at all. It’s possible that the data played a role in the equity rally, but I am dubious of that. In any case, we soldier on. The only piece of data today is May’s Factory Orders report, which isn’t especially influential during normal times. Factory orders were down by -1.0% in May, which was anticipated. One step forward, one step back, as far as manufacturing goes in the United States.
Let’s beat a dead horse:
Brexit, Brexit, Brexit [in voice of Jan from “The Brady Bunch”]!
What’s there to say about this debacle? Across the pond, there’s nothing but a giant mess. The British political parties appear to be undergoing a full-fledged melt-down. Tory Prime Minister David Cameron, who foolishly called this referendum when he did not have to, stepped down (I know this happened prior to last week). The head of the Labour Party got annihilated in a no confidence vote, and there are calls for him to step down. London Mayor Boris Johnson, who was presumed to be trying to become Prime Minister, said that he would not. It seems very apparent that the “leave” side did not really expect to win, and seems to have no plan whatsoever. Both Northern Ireland and Scotland could end up leaving the Union (both voted overwhelmingly to stay in the E.U.). The Bank of England said that it may try to ease in an attempt to stabilize the economy. So, yeah, a giant mess.
The result of this mess? Massive economic instability. For our purposes: U.S. equities got absolutely hammered immediately after the referendum, then rallied for four straight days. As mentioned at the top, the flight to safety caused Treasury yields to briefly hit all-time lows (dipping below 1.38%), and are now hovering just above all-time lows after rallying on Friday afternoon. Mortgage backed securities rallied along with Treasuries, and we could see rates test all-time lows if the rally were to continue.
What’s going to happen? Nobody knows. Some people are making predictions, but I don’t know that any of them are worth a tinker’s damn (or if they are, it’s tough to distinguish the signal from the noise). I don’t even think that it is worth speculating on possible outcomes. The impact on the U.S. economy could be anywhere from minimal to really bad. Everything is up in the air.
Just to add a little more spice to the uncertainty stew, the Italian Prime Minister Matteo Renzi has called for a referendum on a widespread series of changes that would theoretically stabilize the Italian government. The measure is currently behind in the polls, and Renzi has said that he will step down if the measure does not pass. Italy leaving the E.U. looks unlikely at the moment, but nobody thought the Brexit would happen either. Food for thought.
The Fed and the jobs report:
We’re in unprecedented territory.
I think it is safe to conclude that any hikes are on hold for the immediate future as market choppiness dies down. Last week Fed Governor Jerome Powell struck a decidedly dovish tone, as did Fed Vice President Stanley Fischer. Fischer discussed the implications of the Brexit in an interview with CNBC, saying:
“My guess is that it will be less important for the U.S. than the countries directly involved — almost just logically so. We will wait and see.”
He continued:
“Now, you can’t make a whole story out of a month and a half of data, but this is looking better than it had before, so as we consider the effects of Brexit, we have to put that effect on the U.S. together with what else is going on in the U.S. economy. I hope that we strengthen, and that the economy strengthens, and that we continue along this slow, very gradual path we’ve been on.”
Later this week we hear from William Dudley (twice), Daniel Tarullo, and we get the Minutes from the last Fed meeting. The next Fed meeting concludes on Wednesday, July 27th. Right now investor expectations for a hike in the next few meetings have been reduced drastically. We shall see if the Fed attempts to jawbone rates higher over the coming weeks. Between now and the next meeting, we might get some perspective on the Brexit ramifications, and we get the June jobs report this Friday.
The May jobs report was extraordinarily disappointing, showing only 38,000 jobs added, The March and April reports were revised down by 59,000 jobs collectively. The June report is expected to show a bounce back, the consensus prediction shows the economy having added 180,000 jobs in June. If the report comes in as expected, I think we might see rates rise a bit, but the impact will be blunted by the ongoing troubles in Europe. If the jobs report disappoints again, I think we will begin to see more speculation about the U.S. economy possibly entering recession (although on the whole, the economic data of late has been pretty positive). A bad jobs report will likely drive rates lower. And bear in mind that in terms of support and resistance levels, as far as bonds go, we are literally in unprecedented territory.
Don’t wait for rates to rise. Start your mortgage process now.
What’s the takeaway for rates this week?:
Volatility is the name of the game right now, but interest rates have remained low despite last week’s equity rally (and that equity rally is reversing this morning). Mortgage rates have nearly hit 2012 all-time lows. I don’t think there is a whole lot of commentary necessary here. I would be surprised if rates rise in any significant manner in the near future, but the ability to predict short-term movement in rates is pretty much out the window in this environment.
If you have a mortgage or are looking to purchase a house, now is a great time to see if you might be able to save yourself some money.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- Markets closed – Independence Day. Don’t talk about the queen.
Tuesday:
- Factory Orders
- Treasury auctions
- Fedspeak
Wednesday:
- International Trade
- Fed Minutes
- Fedspeak
Thursday:
- ADP Employment Report
- Weekly Jobless Claims
- EIA Petroleum Status Report
Friday:
- Nonfarm Payrolls
from Total Mortgage Underwritings Blog http://ift.tt/29toLm2
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