Last week mortgage rates rose to two month highs. The abrupt jump began on Thursday and continued through to Friday. Both bonds and equities sold off substantially. Yields on 10-year Treasuries were up to 1.67% on Friday, the highest levels we’ve seen since before the Brexit vote that occurred back in June. Mortgage rates were remarkably stable for most of the summer. Freddie Mac’s Primary Mortgage Market Survey showed the average rate on a 30-year fixed-rate mortgage fluctuated between 3.41-3.48% with 0.5 points from the end of the June up until last Thursday.
Is this the beginning of a sustained increase in mortgage rates? I’m inclined to guess that it isn’t – but that is an educated guess at best. Today we hear from Fed Governor Lael Brainard at 1pm today, and depending upon her tone, we could very well see the sell-off continue. More on this below.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There’s no significant economic data on tap today.
The week that was:
Some weeks we get fairly significant market movements when the underlying economic data has, in fact, changed very little. Last week was one of those weeks. In fact, some recent domestic data would indicate the economy is either slowing or ceasing to improve. the most recent monthly employment report was reasonably solid, but below expectations, and both the manufacturing and non-manufacturing ISM reports disappointed. Second quarter GDP has seen downward revisions as was finally measured at a paltry 1.1% (although estimates of third quarter GDP are above 1%).
Despite the above, we saw a surge in rates on Thursday and Friday. As near as I can determine, the reasons were two-fold. First off, ECB President Mario Draghi made a speech that made the markets question whether or not the ECB would continue with its stimulus program. The second thing that happened was that a surprise speech from Fed Governor Lael Brainard was announced on Friday. Brainard will speak today, and this will be the last communication we hear from the Fed until their post-meeting statement on September 21st. There is speculation that the announcement of the speech itself caused the market movement we saw on Friday.
Brainard is considered to be one of the most dovish members of the FOMC. If she were to come out with a speech that made the case for another rate hike this year, it could be seen as signal that a rate hike is imminent. If this happens, expect to see momentum continue to carry rates higher today. The converse is also true. Right now there is a large split between various Fed members as to when it would be appropriate to raise rates. Bloomberg has an excellent breakdown of that rift and of recent Fed communications here.
The rate outlook:
I wish I could tell you where rates are headed. Commentary is widely divergent. Here’s a piece from David Ader in Barron’s from the 10th that makes the case that long-term interest rates will stay low (“Why Long Rates Will Stay Subdued“). Here’s a piece Jeffrey Gundlach in Bloomberg from the day prior that makes the case that rates have bottomed and will begin to rise, although perhaps not in the near-term (“Gundlach Says It’s Time to Get Defensive as Rates May Rise“). If you search, you’ll find numerous articles in support of either side of the argument. It’s really anyone’s guess as to what will happen. The main immediate risk to rates is the Brainard speech today. As I mentioned above, we could see rates pivot based on the tone of that speech.
From a longer term perspective, I would advise that you avoid trying to time the market. That’s a fool’s game. Rates are still quite low from a historical perspective. If you have an existing mortgage, it makes some sense to make a few phone calls to see if you could put yourself in a better financial position by re-financing now. If you’re looking to buy a new home, now is an excellent time to lock in a low rate. We could be in for a choppy ride over the next two weeks – particularly if the Fed sets the stage for a rate hike in their next meeting.
It’s time to see if you can save money. Contact us now.
from Total Mortgage Underwritings Blog http://ift.tt/2ceIcRV
No comments:
Post a Comment