Mortgage rates ticked slightly higher on Wednesday, following comments from several Fed officials, signaling that a rate liftoff could be in the cards in December. U.S. government bonds inched down yesterday, amid expectations that the central bank may hike rates for the first time in almost a decade at its upcoming policy meeting, which is going to be the last one this year. Also, the Fed released the minutes from its October policy meeting this mid-week, which indicated that the majority of policymakers were nearly ready to increase short-term rates last month. The Fed’s minutes suggested that any decision on monetary tightening remains data dependent.
Pricing on mortgage-backed securities (MBS), which lenders use to determine daily mortgage rates, was essentially unchanged from Tuesday. And this means that current mortgage rates look similar to those levels seen a day earlier. The average mortgage lender is quoting the 30-year fixed mortgage rate in the range of 4.000% – 4.125%. While mortgage interest rates had a sharp uptick since mid-October, rates still remain attractive for those who are looking to buy a new or used home or interested in refinancing their existing loan.
At the close of Wednesday’s trading session the yield on the benchmark 10-year treasury note stood at 2.27%, which is 2 basis points higher compared Tuesday’s level. The longer-term 30-year treasury yield closed the trading day at 3.04%, unchanged compared to the yield from a day earlier.
This Thursday morning MBS is in the green, as minutes from the European Central Bank’s October meeting revealed, that further expansion of the bond buying program could be in the cards in order to boost economies in the Eurozone. Following the news, global bonds gained, thus MBS pricing is also on the rise. If MBS pricing remains in positive territory at the end of the day, we may see mortgage rates heading lower.
In other news, after increases in the last two weeks, national mortgage rates leveled off this week, according to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) released earlier today. The federal agency’s weekly survey showed, that the average rate on the 30-year fixed conventional mortgage improved by 1 basis point to 3.97% this week. A year earlier this type of mortgage loan averaged a rate of 3.99%. Also, the national mortgage rate on the 15-year fixed mortgage was lower this week, coming out at 3.18% versus 3.20% last week. Back in 2014, the 15-year FRM averaged a rate of 3.17%, Freddie Mac’s data revealed.
Switching to flexible type of loans, the average rate on the 5-year treasury-indexed hybrid adjustable rate mortgage came out at 2.98% this week, down 5 basis points compared to data in the prior week. The same time a year earlier the 5-year ARM averaged a rate of 3.01%. In case of the 1-year ARM, the current national mortgage rate is 2.64%, an improvement of 1 basis point since last week. Last year, this type of mortgage averaged a rate of 2.44%.
Now, looking at today’s domestic economic data, the Labor Department released its jobless claims report this Thursday morning, which showed that the number of Americans filing for unemployment benefits dropped by 5,000 to a seasonally adjusted 271,000 in the week ended November 14. The current data is in line with economists’ expectations. Jobless claims are below the 300,000 threshold for 37 consecutive week now, which indicates a fairly robust, healthy labor market.
One piece of regional manufacturing report got released this Thursday, in the form of the Philadelphia Fed’s Manufacturing Business Outlook Survey for November. The report showed that manufacturing conditions in the Philadelphia region improved slightly this month, as the index came in at 1.9 versus the consesus expectation of a flat reading. Back in October, the index was in a negative territory at -4.5. The current data is the first positive reading in three months, signaling that manufacturing activity in the region is picking up.
As we reported on Wednesday, several Fed officials chimed in this week regarding the topic of monetary tightening, and most of them seemed to be open to the idea of raising rates in the near future, provided the incoming data points to an upbeat economy. Today a top U.S. central bank policymaker, Atlanta Fed President Dennis Lockhart said in prepared remarks during a speech in Atlanta, that he is „comforable” with lifting short-term rates soon, as concerns about low inflation and global economic headwinds are easing. Although, Lockhart didn’t explicitly set a timetable for raising rates, he added that soon it will be appropriate for the Fed to begin a new policy phase.
Since mid-October expectations among investors and traders hardened that the Fed will raise rates before the end of the year. According to the CME FedWatch tool, which is used by market participants to predict future monetary policy, investors are pricing in a 72% chance of a rate hike at the December FOMC meeting, up by 4% since yesterday.
Currently, the market is expecting a move away from zero interest rate policy before year-end, so we believe it could be a wise decision for potential borrowers to make a move and lock a rate before the Fed pulls the trigger. If you are in the process of getting a mortgage, but want to avoid higher borrowing costs, you may want to strike until the iron is hot.
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