Mortgage interest rates edged slightly lower ahead of tomorrow’s FOMC statement, as pricing on mortgage bonds improved throughout the day. Still, lenders have remained cautious with repricing and there’s a reason behind that. The conservative stance from lenders can be explained with the simple fact, that they are more cautious to alter rate sheets ahead of market moving events that have the potential to cause signficant volatility. And June’s FOMC statement is without a doubt the highlight of this week’s economic calendar. Mortgage rates can be at risk on Wednesday, depending on the outcome of the much anticipated Fed meeting.
U.S. government bonds prices improved for the second straight day, as concerns over Greece’s debt talks intensified. Investors flocked to safe haven assets, like mortgage-backed securities (MBS), which eventually led to slightly lower mortgage rates today. As for government bonds, the yield on the benchmark 10-year treasury note dropped to 2.315% during late afternoon trading compared with yesterday’s 2.358%.
Now, looking at current domestic economic data that was released in the last two days, the latest data from the Federal Reserve of New York revealed, that business conditions in the NY region unexpectedly worsenened in June, with the Empire State Manufacturing Index declining to -1.98 from the previous 3.98, that it held a month earlier. June’s reading missed the consensus expectation and it signals contraction in the sector. This is not a good figure by any means and raises questions about the health of the manufacturing industry.
U.S. industrial production declined 0.2% in May from the prior month, as a strong dollar and weak global demand held back manufacturing output. Economists had forecast an increase of 0.2% for May’s industrial production data. Four of the last six industrial production reports showed contraction. On Thursday, the Philly Fed’s Manufacturing Index for June is coming out, which will give us more insight on U.S. manufacturing activity.
Earlier today the Commerce Department reported that after a double-digit gain in April, housing starts pulled back in May, tumbling 11.1% to a seasonally adjusted 1.036 million. This figure is below the consensus exepctation and it offset the gains from April, when housing starts were revised up to a seasonally adjusted 1.17 million. On the other hand, building permits, which is an indicator of housing demand, surged 11.8% to a seasonally adjusted annual rate of 1.275 million in May, a far better reading compared with economists’ expectations. This is a really good report, which indicates pick up in the housing industry. If the economy is indeed back on track in the second quarter, the housing sector looks to be one of the bright spots.
In other news, Zillow reported today that the interest rate on the 30-year fixed mortgage improved by 3 basis points to 3.93% during the wraparound week ending on Tuesday at the company’s lending marketplace. According to Zillow’s data, the 15-year fixed home loan is now hovering at 3.05%, while the 5/1 hybrid ARM is coming out at 2.93%. In California, the interest rate on the standard 30-year fixed mortgage inched down by 1 basis point to 3.93% compared to data from a week earlier. The biggest weekly change in 30-year mortgage rates took place in Pennsylvania, where the 30-year FRM headed lower by 5 basis points to 3.90%, according to Zillow’s findings.
So mortgage rates are in slightly better territory in the beginning of the week, as the Fed rate statement looms. If you are looking to get a mortgage, probably it’s better to take action ahead of the release of the Fed statement, to be on the safe side. The current trends point toward higher mortgage rates and we have been experiencing extreme market volatility in the last few weeks. This is a troublesome environment for mortgage rates and any hints from the Fed that would signal a rate hike earlier than expected could be disastrous for short-term mortgage rate movements.
Mortgage interest rates have been on an upward path since the last couple of weeks and it doesn’t seem this trend will change in the foreseeable future. However, it’s not impossible to imagine a scenario where we could see rates fall to record lows. Ultimately, the decision to lock or float depends on your risk tolerance. If you are risk-averse, you may better lock a rate sooner rather than later. On the other hand, if you are willing to gamble for a big reward, then you want to float and see what happens to mortgage rates in the next few weeks.
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