Mortgage rates are elevated following the bond market sell-off that began two weeks ago. Yields on 10-year Treasuries were as low as 1.54% on September 7th, and rose as high as 1.73% by September 13th, closing the week at 1.69%. Mortgage rates followed suit. Last week’s Primary Mortgage Market Survey from Freddie Mac reported the average rate on 30-year fixed-rate mortgage was 3.50% with 0.5 points. This is the highest 30-year rate Freddie Mac has reported in close to three months.
The Freddie Mac report sometimes lags the market because of the way the survey is conducted. The responses are collected early in the week, and the survey results are released on Thursday. In this case, however, yields are relatively close to where they were early in the week, so the survey results are more or less representative of where rates are today. Rates are probably going to stick around current levels for the next few days as we wait to hear the results of the Fed meeting on Wednesday. More on that after the jump.
Click here to get today’s latest mortgage rates.
The week that was:
A quick blow-by-blow to bring us up to speed:
- Monday: yields ended up close to unchanged. Fed Governor Lael Brainard made a speech where she warned against hiking rates too early. Brainard is regarded as one of the most dovish Fed members, so bonds didn’t rally, but the markets were reassured that the Fed was unlikely to hike this week. Mortgage rates were flat.
- Tuesday: yields jumped. 10-year Treasury yields were as low as 1.65% during the overnight session, and climbed as high as 1.75% Tuesday afternoon. This was at least in part due to a series of poor bond auctions. Part of the sell-off was also likely due to momentum and group think. As far as I can tell, nothing changed fundamentally that would cause a ten basis point upward swing. Mortgage rates rose with Treasuries.
- Wednesday: bonds rallied a bit, and yields came back down. There was no particularly important domestic economic data (that started to come out on Thursday), so it may have been that some people just saw a buying opportunity with bonds at recent lows.
- Thursday: yields were flat, but there was a bunch of weak economic data issued. Several reports on manufacturing disappointed and August’s Retail Sales numbers were weak. The Atlanta Fed’s GDPNow forecast for the third quarter was revised down from +3.3% to +3.0%. One positive was that the Producer Price Index showed a slight uptick, although inflation is still not close to the Fed’s 2.0% target.
- Friday: once again, yields were just about flat. The Consumer Price Index showed some signs of inflation.
That was the week in a nutshell. We’re in a holding pattern waiting for the Fed, and I don’t think we will see things change all that much until Wednesday. For what it’s worth, the implied probabilities of a hike at the September, November, and December meetings based upon the prices of Fed Fund futures are 12%, 21.2%, and 55%, respectively.
The rate outlook:
Is the Fed going to set the stage for a rate hike before the end of the year? That’s the question this week. The market has already begun to price in another hike this year, and that is one of the reasons that rates have begun to rise. If we see a hawkish Fed statement this week, I wouldn’t be surprised to see 10-year Treasury yields to rise to 1.80-1.90%, which is the generally where they were prior to the Brexit vote back in June. Mortgage rates would rise accordingly. Whether or not the Fed would ultimately follow through with a hike, and whether rates would remain at those levels is another question. The Fed has repeatedly emphasized that the course forward is data dependent. There’s a lot of data between now and the December meeting – in particular the October and November employment numbers and several measures of inflation.
There’s a rift between the hawks and doves on the FOMC (here’s a good breakdown of the situation from Bloomberg). Will the doves acquiesce to a hike in December if current conditions prevail? Your guess is as good as mine. Beyond the economic data, there’s also the complication of the tightening presidential election. The election was bound to grow tighter following the conventions, and given the polling in a number of battleground states, is probably not as close as the nationwide polls would suggest. Regardless, I think that perception that Trump is closing in on Clinton will ultimately be bad for bond yields. Recollect that back in May, Trump suggested that U.S. bondholders could take a haircut if the economy went south. Granted, the guy says all sorts of stuff, but that does not inspire confidence. I think the prospect of a Trump presidency would cause unease in U.S. investors, both foreign and domestic, and we’d see a spike in rates.
But all of that is some months down the road. For now, rates are very attractive by historical standards. Even looking more recently, rates were around 4.00% at the beginning of the year, and are now around 3.50%. If the economy doesn’t go south, and the Fed pushes ahead with plans to hike, we’ll probably be looking at rates that are at least 4.00% at some point down the road. I can’t tell you when that will happen, but it seems more likely to occur than not.
If you’re looking to refi, you might as well see what kind of rate you can get right now. If you are buying a home, now is a great time to lock in a low long-term rate. Don’t wait for rates to rise.
It’s time to see if you can save money. Contact us now.
from Total Mortgage Underwritings Blog http://ift.tt/2cWphIv
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