Mortgage rates remained unchanged on Tuesday, as the bond market recovered from losses earlier during the day. Government bond yields increased on Tuesday following the release of an upbeat report on consumer prices, which bolstered expectations among investors and traders that the Federal Reserve will raise short-term rates at its upcoming policy meeting in December. According to our observations the average mortgage lender is offering the 30-year fixed mortgage rate in the range of 4.000% – 4.125%.
In the secondary market, the yield on the 10-year treasury note, which is a bedrock of global finance, declined by 2 basis points to 2.25% at the end of Tuesday’s trading day. As mortgage rates tend to follow the directon of the 10-year treasury note, you may see slight improvements at your favorite lender, but most of the time the changes could be seen in lower upfront costs or higher lender credit instead of lower contract rates. As far as the longer-term 30-year treasury note is concerned, the yield dropped by 3 basis points to 3.04% yesterday.
This Wednesday morning mortgage rates look flat, following the release of some mixed economic data. U.S. housing starts fell considerably in October, while the increase in building permits matched economists’ expectations. More details on today’s economic data later on.
Overall, pricing on government bonds have dropped since mid-October, when Fed policymakers signaled that raising short-term rates the first time in almost a decade could possibly take place at the December FOMC meeting. October’s strong jobs report, an upbeat consumer prices report and Fed Chairwoman Janet Yellen’s comments further hardened expectations that the U.S. central bank is on the course to hike rates before the end of the year. Currently, the market is pricing in a 68% probability of a rate hike at the December Fed meeting, according to the CME FedWatch tool.
Now, looking at today’s domestic economic data, one piece of housing market report got released. As we mentioned above housing starts fell significantly in October, dropping 11% from September to a seasonally adjusted annual pace of 1,06 million, which falls short of the consensus expectation of 1,16 million. The current figure marks a seven-month low in housing starts. The Commerce Department’s report also revealed, that building permits increased 4.1% to a 1,15 million-unit rate in October, which is broadly in line with expectations.
On Wednesday, the Federal Reserve released the Minutes from its October policy meeting which revealed that the majority of policymakers anticipated that the economic conditions for beginning to lift short-term rates could be met by the time of the next FOMC meeting in December. The Minutes indicates that most Fed officials were nearly ready to hike rates in October, and a liftoff in December could be appropriate.
Meanwhile, several Fed members expressed their opinions regarding a rate hike on Wednesday. Atlanta Fed President Dennis Lockhart, who is a voting member on the central bank’s policy-setting committee said at an event in New York, that he is reasonaly satisfied that financial market volatility issues have settled down since October and the labor market continued to improve in recent months, thus he is „comfortable with moving of zero soon,”.
Speaking at the same event, Cleveland Fed President Loretta Mester, who is not a voting member on the FOMC this year, repeated her view on Wednesday, saying that the U.S. economy is now strong enough to bear a modest rate hike. New York Fed President William Dudley said on Wednesday, that he doesn’t expect a big market reaction when the liftoff in rates happens.
Another top Fed official, Richmond Fed President Jeffrey Lacker said in an interview on CNBC today, that the central bank should begin tightening monetary policy at the upcoming Fed meeting in December.
Speaking in Houston this Wednesday, Dallas Fed leader, Rob Kaplan expressed that he sees risk in keeping rates near zero for too long. He also added that the return to normal interest rates could be gradual. However, he declined to say whether he would support a monetary tightening next month.
Current mortgage rates are higher compared to levels in the beginning of the month, and as we see it, the most likely scenario is that rates will rise further, whenever the Fed begins tightening monetary policy. The Fed Minutes from October added to the likelihood of a rate hike in December, as the majority of policymakers believe the economy could well handle a liftoff in rates. And whenever the hike happens mortgage rates are expected to rise accordingly. Therefore if you’re planning to buy a new or used home or would like to refinance your existing mortgage in the near future, we advise you to lock a rate sooner rather than later.
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