Following some slight improvements in the beginning of the week, mortgage rates headed higher on Tuesday, due to weakness in the bond market. This is one of those days where there was no such economic data scheduled for release, that could potentially move markets, yet we see an uptick in mortgage rates. Back on Monday the bond market rallied, as buyers stepped in, raising hopes that mortgage rates will somewhat consolidate. Unfortunately, it seems that’s not the case. Pricing on mortgage-backed securities (MBS) edged down today, which is why you may see slightly higher mortgage interest rates at select loan providers.
To give you a little bit of backdrop of the recent mortgage rate trends, last week German Bunds took a heavy beating, and they pulled U.S. government bonds for a ride. European Central Bank President Mario Draghi’s comments, that the European QE program will run in full force through 2016, have also contributed to the weakness in the bond markets. And on Friday, a very solid May Non-Farm Payrolls data sparked yet another massive bond selloff during the trading session. Since MBS is usually following U.S. treasuries, it’s not surprising that mortgage rates rose sharply throughout last week, to their highest levels of 2015.
Apart from the upcoming retail sales data on Thursday, not many influential economic data will see the light of day this week. The second week of each month tends to be boring regarding domestic economic data. As this week seems to be a slow one, mortgage interest rates are mostly taking clues from U.S. treasury auctions, European bond market movements and Eurozone headlines. Tomorrow a 10-year treasury auction will take place that could have an impact on markets. We should also keep an eye on the situation over Greece’s debt payment as well, which is due at the end of the month. If Greece fails to pay back the debt to its creditors before deadline, it could have a huge impact on financial markets.
With regards to today’s economic calendar, the Job Opening and Labor Turnover Survey (JOLTS) for April was released earlier today, showing that job openings rose 5.2% to a seasonally adjusted 5,376 million last month, a much better figure than the consensus expectation. Previously, economists had forecast a reading of 5.044 million for April’s JOLTS data. This is the highest number of job openings since the survey began in December 2000. Without a doubt, this is a strong report, signaling a steady growth in the labor market. While it’s considered as third or second-tier economic data at best, the Fed is closely watching this report, among others, to determine the timing of a rate hike.
Speaking of rate hike, there’s not much talk going on about it so far this week. Although, we saw a set of strong domestic economic data, like the latest ISM Manufacturing Index, ADP Employment Report and the May Non-Farm Payrolls Index, over the past week, a lift in short-term interest rates in June is highly unlikely at this point. As we repeatedly said, we believe the Fed wants to see a series of positive influential economic data before hiking rates. A lift in short-term interest rates in September, is the most likely scenario, according to the majority of economists.
In other news, over at Zillow Mortgages, interest rates on 30-year fixed loans spiked during the wraparound week, according to the financial company’s data. As of Tuesday, the 30-year FRM is coming out at 3.96% at Zillow Mortgages, which translates to a 18 basis points uptick compared to data from the prior week. In California, the 30-year fixed mortgage rate came in at 3.94%, an increase of 17 basis points compared to last week’s data (3.77%). The biggest uptick took place in Massachusetts, where the mortgage rate on the 30-year fixed loan surged by 24 basis points to 3.96%.
Last week was one of the most depressing weeks for mortgage rates, and we are not seeing many signs that the situation is about to improve. In case the bond market is experiencing more weakness going forward, then the current sub-4% rates could be at serious risk. With that in mind, if you are considering to take on a mortgage loan these days, you may want to go ahead and lock a rate sooner rather than later. However, if you believe you can handle risk, you may want to wait and see what happens to mortgage rates in the coming weeks.
Right now, rates still look quite attractive from a historical perspective. It’s not impossible to imagine a scenario where rates are heading back to extremely low levels, but we believe it’s more likely that they will be heading upwards from now. Overall, a decision to lock or float ultimately depends on your financial situation, your appetite for risk and other factors.
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