Last week mortgage rates rose a little bit. According to Freddie Mac’s Primary Mortgage Market Survey, the average rate on a 30-year fixed-rate mortgage rose to 3.66% with 0.6 points. Last week, the survey showed an average rate of 3.59% with 0.5 points. As always, we note that the survey results are issued on Thursday, and most of the responses are collected earlier in the week. As a result, the PMMS reflects conditions as they were early in the week.
The day before the survey was issued, bond yields began to fall, and mortgage rates dipped. Rates are a little lower right now than the survey shows. Bond yields fell for a variety of reasons. Among them: a more dovish-than-anticipated Fed statement, softer than anticipated domestic and foreign data, and likely, a buying opportunity after bonds sold off over the past few weeks. At the beginning of last week, yields on 10-year Treasuries were around 1.90%, this morning yields are floating around 1.85%. Right now mortgage rates are under slight upward pressure.
Click here to get today’s latest mortgage rates.
Today’s economic data:
There is some data this morning:
- The ISM Manufacturing Index for April came in below expectations, with a print of 50.8 versus the expectation of 51.5. Anything above 50 shows expansion, below 50 shows contraction. Manufacturing has struggled for much of the year, but there are some signs that things may be slowly turning. New orders are down from last month, but still very solid at 55.8. Employment rose to 49.2, which isn’t great, but is on an upward swing.
- The PMI Manufacturing Index for April also came in at 50.8, just below expectations of a reading of 51. New orders rose, but export orders are contracting rapidly.
- Construction Spending rose by 0.3% from February to March, which was below expectations, but February’s number was revised from -0.5% to +1.0%, so this was a pretty solid report overall.
The market reaction to this data appears to be non-existent. The upshot is this, I guess: manufacturing continues to muddle along, but is showing some signs of life. Construction spending remains solid despite slower growth in housing. Ho-hum.
The week that was:
- The labor market “improved further even as growth in economic activity appears to have slowed.”
- Inflation continues “to run below the Committee’s 2 percent longer-run objective.”
- Further on inflation: the Committee expects it to remain low in the near term, but to rise two percent “over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthen further.”
- “The Committee continues to closely monitor inflation indicators and global economic and financial developments.”
Immediately following the statement, bonds rallied and yields fell. Right now the Fed Fund futures prices show just a 17% chance of a rate hike at the next Fed meeting (in June). There’s a lot of Fedspeak scheduled this week, and I think that we could see some hawkishness to counter the perceived dovishness of their statement. I think the Fed wants to keep the June meeting in play for a potential rate hike, and the market is discounting this possibility. Tim Duy wrote a nice piece about this on Friday (“Warning: Hawkishness Ahead“). I recommend reading it in full, he lays out a coherent argument as to why the Fed might hike in June. Here’s his ultimate takeaway:
“Be forewarned: The Fed is primed by financial markets to change their story. If the data shifts as well, they will be looking hard at June. I don’t think the data will line up in time, but the possibility should be on your radar. There is a lot of data between the April and June meetings – two releases of many critical indicators. Too much data to be complacent.
Bottom Line: Remember, the Fed can turn hawkish as quickly as it turned dovish.”
Don’t be surprised if we see bond yields (and mortgage rates) creep back up this week in response to hawkish Fed speeches.
Don’t wait for rates to rise. Start your mortgage process now.
Looking ahead:
I believe there are two main risks to rates this week: 1). the plethora of Fedspeak that I mentioned above, and the possibility that the speakers jawbone yields higher, and 2). the monthly employment report on Friday. Generally speaking, the labor markets have been strong, but we haven’t really seen much in terms of wage growth. In order for inflation to move toward the Fed’s 2% goal (and clear the path for the Fed to hike rates), we really need to see some sustainable wage growth. If we see this occurring in Friday’s report, look for bond yields and mortgage rates to rise.
Click here to get today’s latest mortgage rates.
What’s the takeaway for rates?:
I’ve been saying the same thing for months, and I’ll say it again now: rates remain favorable. Rates are a little bit above the lows of the year. If you are looking to refinance your home, now is definitely a good time to see if you could save some money on your monthly payments, take cash out, or shorten your loan term. If you’re buying a new home, it’s a good time to lock in a low rate for a very long time. As I mentioned above, there is some risk to rates this week, although I don’t think it is a significant risk. It’s worth noting that I thought last week’s Fed statement would be hawkish, and that we would see rates tick up last week. I was totally wrong about that. So, as with anything you read on the internet, take it with a grain of salt.
I can’t see into the future, and if I could, I wouldn’t be spilling the beans here. Everything is an educated guess at best.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- PMI Manufacturing Index
- ISM Manufacturing Index
- Construction Spending
- Fedspeak
Tuesday:
- Fedspeak
Wednesday:
- ADP Employment Report
- International Trade
- Factory Orders
- ISM Non-Manufacturing Index
- EIA Petroleum Status
Thursday:
- Weekly Jobless Claims
Friday:
- Nonfarm Payrolls
from Total Mortgage Underwritings Blog http://ift.tt/21qeKXo
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