Mortgage rates header lower late last week, amid falling oil prices, which urged investors to flock into ultra-safe haven assets, such as treasury bonds. On Friday, U.S. government bonds had their biggest single-day price gain since July, amid growing expectations that the Federal Reserve will hike rates at the December FOMC meeting this week, for the first time in nearly a decade. Pricing on mortgage bonds, such as mortgage-backed securities (MBS), which most directly influence interest rate movement, improved on Friday, thus you may see slightly lower mortgage rates at the beginning of the new week. According to our observations, the current mortgage rate on 30-year fixed conventional mortgages ranges between 3.875% – 4.000% at the majority of lenders.
Looking at U.S. government bonds, the yield on the benchmark 10-year treasury note finished Friday’s trading session at 2.13%, a decline of 11 basis points. On the other hand, the 30-year treasury bond closed the trading day at a yield of 2.87%, down 11 basis points compared to Thursday’s data.
As mortgage rates tend to follow the movement of the 10-year note, you may see some slight changes in borrowing costs at your favorite lender. However, at most lenders the changes can be seen in lower upfront costs or higher lender credit as opposted to lower contract rate. The reason why lenders are cautious making big adjustments to their rate sheets these days can be explained with the fact, that the market is widely expecting a rate hike to take place this week.
With no economic data scheduled for release on Monday, the market will likely be influenced by November’s retail sales data, as well as overseas events. Currently, pricing on MBS is down and right now mortgage rates are losing some of Friday’s gains, but we need to wait and see how this plays out at the end of the day.
National mortgage rates were slighty up last week, Freddie Mac’s latest weekly Primary Mortgage Survey (PMMS) revealed. According to the federal agency’s report, the 30-year fixed conventional mortgage rate climbed 2 basis points to 3.95% last week. Still, the 30-year fixed mortgage rate is below 4% for more than 20 consecutive weeks now. The shorter-term, 15-year fixed mortgage rate stands at 3.19%, an increase of 3 basis points compared to data in the prior week.
While Freddie Mac’s data suggests a slight uptick in 30-year and 15-year mortgage rates nationwide, current mortgage rates are lower in the beginning of the week. When looking at Freddie Mac’s mortgage data, it must be noted, that the survey responses are collected in the first half of the week, so the final data doesn’t reflect those changes that impact mortgage rates later on during the week. As we mentioned above, the 30-year FRM is now quoted between 3.875% – 4.000% at most lenders, but the actual rate varies depending on state, lender and the borrower’s credit history, besides other things.
Now, moving on to the upcoming week’s economic calendar, a couple of housing market and manufacturing reports are scheduled for release this week. However, the highlight of the week will take place during the mid-week, as the Fed will begin its 2-day FOMC meeting on Tuesday and will announce its monetary policy decision on Wednesday. In the last few weeks expectations have hardened that the U.S. central bank will raise short-term rates at its December meeting. The CME FedWatch tool, which is used by investors and traders to predict future monetary policy, shows that market participants are pricing in an 83% probability of a rate hike to take place at the upcoming Fed meeting.
As far as mortgage rates are concerned, the possible consequences of a rate hike are unclear at this point. However, cautious borrowers, who are looking to get a new mortgage to buy a home or to refinance an existing loan, should consider locking a rate early in the week, in order to avoid the risks of higher mortgage rates.
Coming back to the unfolding week’s domestic economic reports, the Empire State Manufacturing Index for December will be issued on Tuesday. Following a disappointing reading in November, economists are expecting an improvement in the New York region manufacturing activity this month. However, the index is expected to remain in negative territory for the fifth straight month, as the sector is struggling with a couple of headwinds, including a strong dollar, falling oil prices and softer global demand.
On Tuesday, the Labor Department will publish December’s Consumer Price Index. In November, the core consumer price index advanced 0.2%. Economists estimate an increase of 0.2% month-over-month for the upcoming CPI data.
Also, a couple of influential housing market reports will see the light of day this week. The National Asssociation of Home Builders / Wells Fargo Housing Market Index for December is expected to show an uptick in homebuilder sentiment to 63. Back in November, the same index unexpectedly declined three basis points to 62, but outlook on home sales remained favorable.
Wednesday will see the release of November’s housing starts data and economists believe the pace of residential starts increased 7.3% to a seasonally adjusted 1.135 million units last month. Building permits, a proxy for future construction, likely fell 1% to 1.15 million units in November, according to the latest projections.
During the mid-week, the Fed will issue the latest industrial production figures. Economists believe that industrial production fell 0.1% last month, while capacity utilization likely dipped to 77.4% from 77.5%.
The preliminary reading on U.S. manufacturing activity for December will be released by Markit Economics on Wednesday. Analysts believe that the rate of expansion in the U.S. manufacturing sector likely slowed down to 52.6 this month from 52.8 in November.
Fresh jobless claims data, which is scheduled for release on Thursday, will provide us information about the current state of the labor market. The latest data released by the Labor Department last week, showed that initial claims for unemployment benefits increased by 13,000 to a seasonally adjusted 282,000 in the week ended December 5. According to analysts, this week’s reading could show initial claims falling by 8,000 to 274,000.
Besides the above mentioned housing market reports and other domestic economic data, this week a few regional manufacturing activity reports are scheduled for release. The Philadelphia Fed’s Manufacturing Business Outlook Survey for December is coming out on Thursday. The latest estimations suggest that regional manufacturing activity in the Philadelphia region improved to 1.0 in December from 1.9 a month earlier.
Another regional manufacturing report that will be issued this week is the Kansas City manufacturing activity data for December. According to the latest projections, the regional manufacturing index likely improved to 2 this month from 1 in November.
The market will get fresh data on the U.S. services sector on Friday, in the form of the Markit U.S. services PMI for December. Economists forecast a reading of 55.9 for December’s PMI compared to 56.1 last month.
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