Two weeks ago mortgage rates increased a bit due to a number of hawkish communications from the Fed. Since then, rates have been close to unchanged, setting aside day-to-day market movement. Last week’s Primary Mortgage Market Survey from Freddie Mac showed that the average 30-year rate on a fixed-rate mortgage was 3.64% with 0.5 points. To put that in some context, the Freddie survey has shown 30-year rates to be between 3.59-3.66% since the beginning of April. Over approximately the same time frame, yields on 10-year Treasuries have floated between 1.70-1.90%.
From May 13 to May 18, Treasury yields jumped from about 1.70% to almost 1.90% due to the aforementioned hawkish Fedspeak. Since that time, yields have basically moved sideways, although a rally this morning has brought yields down around 1.81% or so. It’s notable that Janet Yellen made some hawkish comments in a press conference last Friday, answering a question about rate increases by saying that we may see them “in the coming months.” This reinforced the message we heard from other Fed members over the prior couple of weeks. The markets were nonplussed. I’m not entirely sure what to make of the non-reaction. Either the markets have already adequately priced in the possibility of a hike in June or July, or participants aren’t buying what the Fed is selling – which is not an unreasonable position to take.
Either way, rates have been relatively stable for nearly two months.
Click here to get today’s latest mortgage rates.
Recent economic data:
There was a lot of data issued yesterday, and a good deal this morning. The big event of the week remains the May employment report which comes out on Friday. However, I have heard that this report may miss expectations, and that a lot of that will be because the striking Verizon workers will be reflected in this iteration of the report. I bring this up because weakness in the report could be written off for this reason, particularly because Verizon workers are returning to work this week. Anyway:
- The S&P/Case-Shiller Home Price Index beat expectations, showing 0.9% month-over-month growth on a not-seasonally adjusted basis. However, year-over-year growth has stalled at 5.4%.
- Chicago PMI missed expectations, falling from a level of 50.4 in April to 49.3 in May (numbers over 50 show growth, sub-50 show contraction). Inventories fell, which could indicate that future demand could be falling. New orders also fell into contractionary territory.
- May’s consumer confidence report missed expectations, coming in at 92.6 compared to the expectation of a reading of 97. April’s number was 94.2. This is kind of an odd reading, because home sales and personal incomes and expenditures seem to suggest the consumer is out there consuming, and s/he wouldn’t be doing so if they expected tough times ahead (presuming the consumer has common sense).
- Look out below! May’s Dallas Fed Manufacturing Report was waaaaaaaay below expectations. The production index came in a -13.1 compared with expectations of 5.8, and the general activity index was -20.8, compared with expectations of -13.9. This reading has been in negative territory for over a year. Oil prices are up, but perhaps this report lags changes in oil prices. We’ve seen a slowdown in other Fed regional reports lately, though, so I’m not sure this is an outlier.
- The PMI Manufacturing Index for May came in just above expectations with a reading of 50.7, slightly below April’s reading. Not much to see here.
- The ISM Manufacturing Index for May came in above expectations, with a print of 51.3, up from 50.8 New orders and export orders were both solidly above 50. A decent report for a sector that has generally been struggling.
This week’s data has been fairly mixed. Interest rates are falling this morning for reasons that are escaping me – perhaps disappointing overseas data, perhaps something else. I’m grasping at straws here, the market just hasn’t changed all that much for the past few weeks, and there’s not a lot more to say beyond that.
What’s the takeaway for rates this week?:
Rates are stable right now. For a brief period, it looked like they were on an upward trajectory, which has since reversed itself to a degree. It’s somewhat confounding, because the Fed has clearly been attempting to jawbone rates higher, and they’ve only been marginally successful. Economic indicators have been somewhat mixed, but one could make the argument that a rate hike in the near future is appropriate (not an argument I would make, but it’s plausible).
I don’t think that we will see a hike in June, largely because of the Brexit* referendum that occurs just a few days after that meeting. I think that the June meeting will be used to foam the runway for a hike in July, assuming that the economic data doesn’t take a nose-dive in the meantime. The larger question for our purposes is this: will a June hike really matter all that much?
I’m not sure that it will. The Fed has repeatedly emphasized that the path to normalizing rates will be gradual. I don’t think we will see a sudden spike in rates whenever the hike occurs, more likely a gradual rise. I’d still recommend trying to lock in a rate sooner rather than later, however. My reasoning is that the future is unpredictable, and unless the economy goes into the tank, it’s hard to see how rates will fall significantly. It seems more likely than not that we see rates remain stable or increase incrementally in the coming months.
*This is vote where the British will decide whether or not to stay in the EU. The polls show that the vote could be close. Unless the “stay” side starts to take an overwhelming lead, I can’t see the Fed hiking with the potential for turmoil looming.
Don’t wait for rates to rise. Start your mortgage process now.
Notable events this week:
Monday:
- Markets Closed – Memorial Day
Tuesday:
- Personal Income and Outlays
- S&P/Case-Shiller Home Price Index
- Chicago PMI
- Consumer Confidence
- Dallas Fed Manufacturing Survey
Wednesday:
- PMI Manufacturing Index
- ISM Manufacturing Index
- Construction Spending
Thursday:
- ADP Employment Report
- Weekly Initial Jobless Claims
- EIA Petroleum Status Report
Friday:
- Nonfarm Payrolls Report
- International Trade
- Factory Orders
- ISM Non-Manufacturing Index
from Total Mortgage Underwritings Blog http://ift.tt/22xKIl5
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