Mortgage rates remain in more or less the same place they’ve been since the beginning of July. Last week’s Primary Mortgage Market Survey from Freddie Mac showed that the average rate on a 30-year fixed-rate mortgage with 0.5 points was 3.43%, down from 3.45% the week before. While bond yields have risen a bit since the survey responses were collected (early last week), things have not changed substantially since the survey was issued last Thursday. We’re in the midst of an 8-week run where 30-year rates have fluctuated within a very narrow band, ranging from 3.41% to 3.48%.
There is the potential that we could see things begin to shift this week, though. We’ve continue to hear rumblings of a rate hike from assorted Fed speakers, and Fed Fund futures are beginning to price in a potential rate hike by the end of the year. Janet Yellen gives her speech from the monetary policy symposium at Jackson Hole on Friday. If she signals that a rate hike is coming, expect a bond sell-off to force rates higher. More after the jump.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There is no economic data of importance today. Fed Vice Chair Stanley Fischer made a speech at the Aspen Institute last night, and it bears mention here. Fischer hinted that conditions could be appropriate for a rate hike this year. The full text of the speech is here, but the takeaway is that Fischer emphasizes that employment is strong, and that inflation is “within hailing distance” of the Fed’s two percent goal. The hawks on the Fed have wanted to hike for a long time now, and stubbornly-low inflation has been the main thing standing in their way. If inflation picks up and employment remains strong, we could see another hike before the end of the year. Yields on 10-year Treasuries rose as high as 1.60% following the speech, but have since dipped back toward 1.55%. To put that in perspective, I believe the last time yields were that high was before the Brexit vote in June. Rates are still very close to record lows, but the stage is set for that to change.
The week that was:
No thinking or laughing allowed, and smiling only permitted on alternate Thursdays.
We’re in the midst of the summer doldrums and vacation season, which was reflected by the stark lack of interesting activity last week. Let’s recap briefly. We got positive housing data, mixed-to-poor data on manufacturing, and inflation remained steady. There was a slew of Fedspeak last week, and it seems pretty clear that the Fed is trying to jawbone rates higher in advance of a hike in order that there isn’t s sudden spike in rates whenever it is that the Fed finally does hike. To that end, let’s take a look at the implied odds of a hike in the coming months according to Fed Fund futures prices:
- September: 18%, up from 12%
- November: 26.5%, up from 19.3%
- December: 51%, up from 46.2%
So the market now has even odds that we see a hike before the end of the year. We’ll see what Yellen says at Jackson Hole on Friday. If she comes across as hawkish, expect to see rates rise. I think it is unlikely that we see a hike before December, assuming that we see one this year, but the next couple of employment reports and inflation readings will really determine what happens (outside of external influences, which are basically impossible to predict).
The rate outlook:
I’ve been writing this blog for more than six years now, and one constant has been that about half of my rate predictions are right, and half are wrong. I take my best educated guess, and do no better than a blindfolded monkey. I’m not convinced anyone does better than that in the long run, anyway. I mean, the Fed has been consistently wrong with their interest rate predictions for years now, and they are supposed to be some of our best economists.
Point is this: nobody knows what’s going to happen. Every time it’s looked like rates were going to rise, some event has come along that has reversed things – the debt crisis in Europe, the slowdown in China, the U.S. government shutdown, the Brexit, and so on and so forth. You can’t predict these things. The best I can do is to say that the Fed wants to tighten policy, and unless one of these events occurs, they will likely do so in the coming months. And mortgage rates will rise. Again, we could see the beginning of this on Friday if Yellen foams the runway for a hike. I doubt she’ll say anything that explicit, but you never know.
If I were looking for a mortgage, I’d try to move quickly. But I’ve been saying that for months. And I’ll refer you to the blindfolded monkey comment two paragraphs back.
Have a good week, I’ll be back on Monday.
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