As has been the case for most of the summer, mortgage rates barely budged last week. Since the week of June 30th (cherry-picking, sure), Freddie Mac’s Primary Mortgage Market Survey has shown the average rate on a 30-year fixed-rate mortgage to be between 3.41-3.48% with 0.5 points. Last week’s print was 3.43% with 0.5 points. Like a metronome, rates tick back and forth, with the end result being little net change. As we tediously note every single week, the results of the survey are collected early in the week, and the survey itself is published on Thursday. As a result, any changes that take place at the end of the week are not reflected until the following week. This week mortgage rates rose on Friday when bonds sold off due to unambiguously positive monthly employment data. Yields on 10-year Treasuries, which were sitting around 1.50% on Friday morning jumped to 1.57% or so after the employment report was released. Presently, yields are floating around 1.60%.
Will we see any substantial change this week? I suppose we could see momentum continue to carry yields somewhat higher in lieu of any influential economic data. But if I’ve learned anything over the years I’ve done this, it is this: predicting where rates will go in the future is an utterly futile task.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There’s only one data point of any importance today – and that’s a stretch. Anyway, the labor market conditions index for July showed a reading of 1.0, up from -0.1 last month. The index is a pastiche of other employment indicators, and this is the first month this year that the Index has been positive. In light of Friday’s very strong employment report, this likely has very little market impact.
The week that was:
Frankly, last week was pretty boring (from a market-perspective, anyway – it was one of the craziest political weeks I can ever remember). The main event last week was the release of the July employment numbers, which came out on Friday. It was one of the best employment reports we’ve seen in a while.
The BLS reported that 255k jobs were added in July, the expectation was for a print of 185k. June was revised from +287k to +292k. Unemployment held steady at 4.9%, while the workforce participation rate ticked up from 62.7% to 62.8%. That workers are rejoining the labor force while unemployment holds steady is a good sign. Average hourly earnings came in as expected, showing a 0.3% month-over-month increase, compared to just 0.1% growth in June. Inflation, which has been below Fed targets (by most measures) for what seems like an eternity now, is not really sustainable until we see wage growth in earnest. If this trend continues in August, the idea of the Fed hiking in September becomes increasingly plausible.
Looking ahead:
We don’t get much terribly important economic data this week. We get a 10-year Treasury auction and labor data on Wednesday, and then July’s retail sales report as well as some inflation data on Friday. Those are probably the “highlights” of the week. This leaves the markets free to speculate on what the Fed may or may not do in light of strong employment data. The implied probability of a rate hike this year has increased significantly as derived from Fed Fund futures prices. The present probabilities are:
- September: 18%, up from 15%.
- November: 18%, up from 15%.
- December: 45.4%, up from 43.4%.
There is no Fedspeak this week. Next week we hear from Atlanta Fed President Dennis Lockhart and St. Louis Fed President James Bullard. The Minutes from the last FOMC meeting are out on the 17th. Then we hear from Fed President Janet Yellen at the Jackson Hole monetary symposium on Friday the 26th.
The hawks at the Fed have an increasingly strong case to make for at least one hike this year. The Atlanta Fed’s GDPNow forecast is now showing 3.8% growth for the third quarter. Employment figures remain strong while workers re-enter the workforce. There are some signs that inflation may finally be picking up, and we are seeing the beginnings of some wage growth. The doves’ main argument is that the risk of snuffing out the recovery by hiking rates are outweighed by the potential benefit of hiking in order to get ahead of inflation. That argument is getting weaker.
The recent rise in Treasury yields reflects that the markets are pricing in the increased chances of a hike. If the upcoming Fedspeak is hawkish – particularly Yellen at Jackson Hole – yields are going to climb further.
The rate outlook:
If I were looking for a mortgage, I would be concerned that some hawkish Fedspeak and the possibility of another strong jobs report could cause rates to jump. I think we are more likely looking at a gradual climb from current levels (which are close to all-time lows) and something more “normal.” Now, every time we’ve got to this point over the last couple years, something has occurred – usually some overseas event – which caused the Fed to put normalization on hold. The Brexit, last summer’s sell-off in Chinese equities, the Grexit crisis, the banking woes in Europe, the U.S. government shutdown of 2013, the potential shutdown of 2015, fluctuations in oil prices, and so on and so forth.
I can’t say for sure that something like that won’t happen again – my general statements about the futility of prediction at the top hold true. But my best educated guess is that we could see rates begin to rise this month. If you’re looking to refinance, I think you’d be well-served by getting the process going now. If you’re buying a home, there are a lot of factors that are outside of your control, but if you can accelerate the process, I think it makes sense to do so.
One more thing:
It’s time to see if you can save money. Contact us now.
Notable events this week:
Monday:
- Labor Market Conditions Index
- Treasury auctions
Tuesday:
- Productivity and Costs
- Treasury auctions
Wednesday:
- Job Openings and Labor Turnover Survey
- EIA Petroleum Status Report
- Treasury auctions
Thursday:
- Weekly Initial Jobless Claims
- Import and Export Prices
Friday:
- Retail Sales
- Producer Price Index – Final Demand
- Consumer Sentiment
from Total Mortgage Underwritings Blog http://ift.tt/2aLN1z6
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