Mortgage rates improved in the beginning of the week, as investors and traders flocked into ultra-safe haven assets, such as treasury bonds, while stocks and commodities fell broadly. Continued concerns over China’s slowing economy and the global economic outlook drove investors into U.S. government bonds yesterday, and as a result the yield on the benchmark 10-year treasury note fell significantly. The aforementioned treasury note, reached its lowest level in more than a month on Monday, closing the trading day at 2.10%, which marks a 7 basis points decline compared to Friday’s level. The longer-term, 30-year treasury yield finished yesterday’s trading session at 2.87%, a 9 basis points drop since Friday.
Pricing on mortgage-backed securities (MBS), which lenders use to determine their daily mortgage rate sheets, improved as well, therefore you may see slightly lower interest rates at your favorite lender now. We should note, however, that at a lot of lenders yesterday’s improvement could be see in the form of lower closing costs. Overall, if you haven’t locked a rate last week in hopes to see more attractive rates in the beginning of the new week, chances that you will see now slightly lower mortgage rates and/or borrowing costs at your chosen lender.
This morning MBS prices moved slightly higher, which may prompt certain lenders to carry out reprices. If the gains don’t evaporate throughout the day, mortgage interest rates may drift even lower.
According to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS) released last Thursday, the national average rate on the 30-year fixed mortgage improved to 3.86% from the previous 3.91% that it carried a week earlier. A year ago at this time, the 30-year fixed loan was hovering at a rate of 3.42%. The federal agency’ survey also revealed, that the shorter-term, 15-year FRM averaged a rate of 3.08% last week, an improvement of 3 basis points compared to data in the prior week. The same time a year earlier, the 15-year fixed mortgage averaged a rate of 3.36%.
Now, turning focus to today’s domestic economic data, according to the latest S&P/Case-Shiller Index released on Tuesday, U.S home prices rose in July, showing a 5 percent gain year-over-year, which is roughly in line with the consensus expectation of a 5.1% growth. The 20-city composite index also showed, that cities witht the highest year-over-year gains include San Francisco (10.4%), Denver (10.3%) and Dallas (8.7%). On a month-over-month basis, the 20-city seasonally adjusted S&P/Case-Shiller Index declined by 0.2%, missing the projected 0.1% growth. Without the seasonal adjustment, the index increased by 0.6% month-over-month, which is a disappointing figure.
On the other hand, the Conference Boards’s Consumer Confidence Index rose to 103 in September from a revised figure of 101.3 in August, indicating that Americans are more upbeat about the economy. This month’s figure is the highest one since January, beating expectations of 96.0.
While today’s domestic economic data may not have immediate influence on financial markets and eventually on mortgage interest rates, still it’s interesting to pay attention to these type of economic reports, as in some way, they may impact the Fed’s decision regarding monetary tightening.
As we mentioned in yesterday’s mortgage report, a healthy number of Fed officials will share their views on monetary policy throughout the week, which may offer some clues for investors and traders about rate-hike timing. On Monday, in an interview with the Wall Street Journal, New York Fed President, William Dudley said that he expects the U.S. central bank to increase short-term rates later this year, reiterating Fed Chairwoman Janet Yellen’s comments from Thursday, when she said that the Fed is on track to increase rates by the end of the year. However, Dudley hasn’t specified what kind of economic data the Fed needs to see in order to go ahead with the rate hike. Nevertheless, he said, that the U.S. economy is expanding at a healthy pace despite concerns over global growth. The New York Fed President feels that the U.S. central bank could reach its two percent inflation target sometime next year, at a faster pace than many other Fed members anticipate.
Meanwhile, another top Fed policymaker, San Francisco Fed President, John Williams said on Monday in remarks prepared for a gathering at the UCLA Anderson School of Management, that a rate hike should take place later this year. Williams, who is a voting member in the FOMC when it comes to monetary policy decisions, believes that it’s appropriate to start raising short-term rates before year-end.
At its September policy meeting the Fed decided to hold off on increasing short-term rates, citing worries over global slowdown and low inflation. While current inflation is nowhere near the Fed’s two percent target level, most Fed officials expect a rate hike to come later this year.
This week’s most influential domestic economic data, the September Non-Farm Payrolls report, which is a key metric for the Fed, will come out on Friday. The report could provide further evidence that the U.S. labor market is improving steadily, which may convince the Fed that the economy can absorb a liftoff in rates later this year. However, if the report misses expectations big time, it may cause some uncertainty regarding the Fed’s rate hike plans.
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