Mortgage rates headed lower on Tuesday, following the release of some weaker domestic economic reports. As a result of the worse-than-expected economic data, pricing on mortgage-backed securities (MBS), which most directly influence interest rate movement, increased, and consequently mortgage rates fell. However, at most lenders the change in mortgage pricing is so subtle, that most borrowers will see little-to-no difference when comparing loan quotes from yesterday with mortgage rates this morning. With that said, the average lender is offering 30-year fixed conventional loans at a rate of 4.250% these days, while some of the more aggressive loan providers quoting a rate of 4.125% for the 30-year FRM.
Yields on U.S. government bonds fell across the board yesterday, marking the fourth straight day that treasury yields are lower. Bonds improved after the release of the Chicago Purchasing Manager’s Index for January, which came in weaker-than-expected. According to the latest data, business activity in the Midwest slowed in January, falling to 50.3 from December’s revised figure of 53.9. The consensus expectation was for an increase of 55.0. That’s a significant miss and the bond market reacted to the news accordingly.
Speaking of weaker domestic economic reports, the latest consumer confidence survey, released Tuesday, showed that Americans are less confident in the economy at the start of 2017. The Conference Board’s Consumer Confidence Index for January dropped to 111.8 from 113.3 a month earlier, which is almost in line with expectations.
The benchmark 10-year treasury bond closed Tuesday’s trading session at a yield of 2.45%, down 4 basis points from a day earlier. Mortgage rates tend to follow the direction of the 10-year treasury yield. When the yield drops on the 10-year note, mortgage rates are often trending lower as well. On the other hand, when the 10-year treasury yield shots up, interest rates usually increase as well. The longer-term, 30-year treasury yield finished the trading day at a lower level too, in the form of 3.05%, a decline of 3 basis points compared to data from a day earlier.
This Wednesday morning MBS is slightly in the green, which is a positive sign for today’s mortgage rates. However, some important economic reports are slated for release later today as well as a key Federal Reserve announcement, which can change things big time.
First, the Federal Reserve will concude its two-day meeting this Wednesday and will release a policy statement this afternoon. Depending on the tone of the statement, mortgage rates could rise or fall. A more dovish tone would certainly help rates to go lower, while a hawkish statement would push interest rates higher. Although, it’s highly unlikely that the Fed will raise rates at the policy meeting, it goes without saying, that market participants will be closely watching the Fed, as subtle changes to the statement’s language could provide clues on the Fed’s officials stance, whether they are sticking to the plan to hike rates three times this year.
Today’s domestic economic headlines include fresh reading on private sector employment, construction spending for December, as well as the ISM Manufacturing Index for January. The first one from the list already got released earlier today, and the report from ADP showed, that the U.S. private sector added 246,000 jobs last month, smashing expectations of a modest 165,000 increase. At the same time, December’s private payroll gains were revised down to 151,000 from the originally reported 153,000, the latest data showed.
In other mortgage-related news, Zillow reported on Tuesday, that the average interest rate on the 30-year fixed mortgage was on a upward trajectory during the wraparound week ended yesterday. The 30-year fixed rate home loan ended the week at 3.97%, an uptick of 5 basis points compared to data from the prior week. According to the company’s findings, the 15-year fixed mortgage came out at a rate of 3.15%, while the 5/1 ARM was offered at a rate of 3.03% in the wraparound week ended Tuesday on Zillow Mortgages.
A regional breakdown of current average mortgage rates shows, that in California, the 30-year FRM was carrying a rate of 3.97% as of Tuesday, an increase of 5 basis points compared to data a week earlier. The biggest weekly increase in mortgage rates took place in New York state, where the current average interest rate on the 30-year fixed mortgage is now coming out at 4.11%, up 14 basis points since last week.
As far as current mortgage rates are concerned, there’s always a possibility that today’s Fed statement, followed by Friday’s big jobs report may create some momentum and interest rates will fall, but the opposite to happen is just as likely. Ultimately, the decision to lock a mortgage rate today or float depends on your risk tolerance. If you are risk-averse, you may better lock a rate sooner rather than later.