Mortgage rates trickled slightly higher at the end of last week, due to a weakness in the bond market, while global stocks strengthened. Back on Thursday, Fed Chairwoman Janet Yellen signaled, that the U.S. central bank remains on track to raise rates, for the first time since 2006, before the end of the year, provided that the economy makes progress towards the Fed’s goals of 2 percent inflation and maximum emloyment. Following Yellen’s speech, investors and traders flocked into riskier assets, and demand for ultra-safe fixed-income securities sapped on Friday. Yellen’s latest comments about rate hike comes on the heels of the Federal Reserve’s decision to hold off on increasing short-term interest rates in September. While mortgage rates were pretty stable last week, the bottom line is, if you haven’t locked a rate until late last week, you may see marginally higher mortgage interest rates at your lender in the beginning of the new week.
U.S. government bonds sold off on Friday, with the yield on the benchmark 10-year treasury note finishing the trading session at 2.17%, up from the previous 2.13% that it held on Thursday. The long-term 30-year treasury yield edged up as well, closing the trading day at 2.96%.
As far as national mortgage rates are concerned, McLean,VA-based government-sponsored enterprise, Freddie Mac reported on Thursday, that the average interest rate on the 30-year fixed mortgage dropped to 3.86% last week. This marks a 5 basis points decrease compared to data from a week earlier. The same time a year earlier, the 30-year FRM was carrying an average rate of 3.42%, according to Freddie Mac’s data. Also, the 15-year fixed mortgage was in a better shape last week, with the average rate on this type of loan improving to 3.08% from the previous 3.11% that it had the week before. The same time a year ago the 15-year fixed mortgage averaged a rate of 3.36%.
Moving away from fixed rate conventional loans, the 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged a rate of 2.91% last week, an improvement of 1 basis point compared to data from a week earlier, the federal agency said. At this time a year ago, the 5-year ARM stood at 3.08%. With regards to the 1-year ARM loan, it averaged 2.53% in the past week, which is 3 basis points lower than a week earlier. The same time a year earlier, this type of flexible mortgage loan averaged a rate of 2.43%, according to the organization’s data.
The week ahead will be packed with a slew of domestic economic data, including the all-important Non-Farm Payrolls report for September, which is due to be released on Friday. In case Friday’s job report significantly beats or misses expectations, we could potentially see a big net change in mortgage rates. Also, a much better or much worse employment report could impact the Fed members’ thinking about the decision on monetary tightening. Besides the upcoming NFP employment report, a bunch of important macro data will get released during the week, including some fresh housing market and manufacturing reports, which may influence the movement of mortgage interest rates.
Moreover, during the week a healthy number of Fed policymakers will chime in with their opinions on monetary policy, which may shed some light on the U.S. central bank officials’ thinking, following last week’s Fed monetary policy announcement.
Now, looking at today’s domestic economic data, the Commerce Department reported earlier this Monday, that household spending jumped in August, while personal income growth missed forecasts. The latest data showed, that consumer spending in the U.S. increased 0.4% last month compared to July’s data, thanks to significant rise in purchases of durable goods. On the other hand, personal income rose 0.3% in August, as a result of solid increases in wages and salaries. However, the current pace of income growth is slighty lower than economists’ expectation (an increase of 0.4%).
Meanwhile, a key measure of inflation remained muted in August, offering little evidence that inflation is approacing the Fed’s target level. The Core PCE Price Index, which is a key indicator for overall inflation and is closely watched by the Fed, rose by only 0.1% month-over-month, while in annual terms, it’s up 1.3% from last August.
On Monday, the National Associaton of Realtors released some fresh housing market data, which showed that sales of previously owned homes fell unexpectedly last month. The NAR’s pending home sales index declined 1.4% in August, as many potential buyers remained on the fence, due to rising home prices and a tight supply of homes. However, in a year-over-year comparison existing home sales are still 6.1% higher than a year ago.
Manufacturing activity in the Texas region was flat in September, according to the latest Dallas Fed Manufacturing survey released in the beginning of the week. This month’s manufacturing index came in at -9.5, which is just a shy away from the projected -10. The current reading, while is shows ongoing weakness in manufacturing activity in the Texas region due to low oil prices, marks an improvement compared to a figure of -15.8 in August.
Coming back to current mortgage rates, if you are looking for a mortgage these days, this could be a great time to lock a rate. Interest rates have improved after the latest Fed’s meeting, and as last week was particularly light on economic data, mortgage rates remained attractive. Although, the Fed decided against increasing short-term rates at its latest policy meeting, we believe the U.S. central bank is determined to raise rates this year. And when the rate hike happens, unless the hike is already priced into bonds, mortgage rates are expected to increase accordingly. So if you are risk-averse, you may better take action and lock a rate at your favorite lender before the Fed eventually decides to increase rates. On the other hand, if you prefer to float in hope to see mortgage rates falling in the near future, we advise yout o float only if you can afford to be wrong.
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