Mortgage rates improved slightly on Friday, which marks the fourth consecutive day of lower interest rates. However, the changes were so small, that not all loan providers passed along the gains, thus altering the contract interest rate. At some lenders the improvements could be seen in slightly lower closing costs instead of lower rates. While in the beginning of the week headlines on Greece’s bailout deal were the main market drivers, in the second part of the week Federal Reserve Chairwoman, Janet Yellen’s testimonies before the Congress and U.S. domestic economic data had bigger impact on market movements. Overall, borrowers who decided to float this week, could see lower mortgage rates across the board, compared to those interest rates from a week earlier.
The U.S. bond market was in a good shape all week, with the 10-year treasury yield improving almost every day of the week. On Friday, the yield on the benchmark 10-year treasury note dipped to 2.34% at the end of the trading day, which translates to a 3 basis points improvement compared to data from Thursday. The yield on the long-term 30-year treasury note headed lower as well, finishing the trading session at 3.08%, according to the latest data.
Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS) released Thursday, showed that the average interest rate on 30-year fixed mortgages inched up 5 basis points to 4.09% in the week ending July 16, amid volatility in bond markets. This is the highest national average mortgage rate on the 30-year FRM this year, according to the federal agency’s data. The same time a year earlier the 30-year fixed loan averaged a rate of 4.13%. With regards to the 15-year fixed mortgage, it came in at a rate of 3.25% this week, an increase of 5 basis points compared to data in the prior week. A year ago at the same time, this type of mortgage loan averaged a rate of 3.23%.
The mortgage-finance company’s weekly survey also revealed, that lenders were offering 5-year and 1-year treasury-indexed ARMs at higher rates this week, than a week earlier. The 1-year ARM was hovering at 2.96% this week, up 3 basis points compared to data from a week earlier. As far as the 1-year treasury-indexed ARM is concerned, the national mortgage rate stood at 2.50% this week.
Back on Wednesday, Fed Chairwoman Janet Yellen told the Congress that the U.S. central bank is still on track to raise short-term rates before year-end, but an exact timing of monetary tightening depends on the incoming economic data. The Fed’s plan to hike rates this year is not a surprise by any means, as the job market has been improving steadily in the last few months, consumer sentiment remains high and the housing market is gaining speed. She added, that the Fed would prefer to raise rates gradually. The consensus expectation that the Fed will act as soon as September, while others believe the U.S. central bank will delay the liftoff until December or early 2016.
While most market participants are expecting a rate hike to take place this year, some financial organizations, including the World Bank and the International Monetary Fund, expressed their concerns last month over the Federal Reserve’s planned rate hike. As we reported before, the World Bank warned the Fed, that a raise in short-term rates this year could lead to such market volatility that was seen back in the summer of 2013. The IMF also thinks that the U.S. central bank should hold off increasing rates until early 2016. The Washington, DC-headquartered financial organization believes that the Fed should delay hiking rates until the economy gets back on track and target inflation levels are met.
The upcoming week’s economic calendar looks to be particluarly light, but we will get some important housing market and regional manufacturing reports nonetheless. The first significant domestic economic data in the week ahead is scheduled for release on Wednesday, in the form of existing home sales data for June. Economists believe that existing home sales likely slipped 1% to a seasonally adjusted annual rate of 5.3 million units in June. Back in May, sales of previously owned homes rose 5.1% to an annualized rate of 5.35 million.
On Thursday, the Labor Department will publish the upcoming weekly jobless claims data. According to the latest forecasts, initial unemployment claims likely fell by 1,000 to 280,000 from a week ago.
The same day the Kansas City Manufacturing Activity data will come out and according to the latest projections, the regional manufacturing index likely improved to -5 in July, from -9 a month earlier.
On Friday, Markit’s preliminary U.S. Manufacturing PMI for July will be released. Over the last few months, we have got some rather soft industrial manufacturing activity reports. It will be interesting to see whether the upcoming flash PMI will come with some promising manufacturing numbers or it remains soft.
Another batch of housing data will be see the light of day in the upcoming week, in the form of new home sales for June. The general consensus is that new home sales likely inched down 0.1% to a seasonally adjusted 546,000 units last month.
While none of these domestic economic reports considered market movers, thus their impact on mortgage rates could be limited in a normal market environment, they could provide some clues to investors about which direction the housing and manufacturing sector are heading to. With the upcoming economic calendar being a quite one, we expect slightly less market volatility during the week, which could potentially lead to smaller swings in mortgage interest rates, unless the incoming data is much better or much worse than expected.
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