Mortgage rates increased on Friday, as pricing on mortgage-backed securities (MBS) moved sharply lower, following the release of stronger-than expected PPI inflation data and slightly weaker-than-expected retail sales data. While market participants usually pay more attention to the monthly retail sales report than the PPI inflation data, this time it was different. On Friday, the bond market, which underlie mortgage rate movement, weakened on fears that inflation might pick up under the Trump administration. As a result, several mortgage lenders updated their rate sheets with higher rates throughout the day. Currently, the most prevalently quoted rate for the 30-year fixed mortgage ist still 4.125%, but a number of lenders are now offering this type of loan as high as 4.375%.
Yields on U.S. government bonds rose on Friday, with the benchmark 10-year treasury note carrying a yield of 2.40% at the close of the trading session. A weekly comparison of 10-year treasury yields, shows that the current yield on the aforementioned government bond is now 2 basis points lower, than a week earlier. As mentioned above, pricing on MBS, which tends to move in the same direction as 10-year treasury notes, decreased during the trading day. When pricing on MBS declines, mortgage rates tend to move higher, and this was the case on Friday. The long-term 30-year treasury bond finished the trading day at 2.99%. A day earlier this type of treasury note was hovering at 3.01%.
Current mortgage rates are lower across the nation, according to McLean, VA-based federal agency Freddie Mac. According to the mortgage-buyer’s latest Primary Mortgage Market Survey (PMMS) released last Thursday, on average lenders were offering the 30-year fixed mortgage at a rate of 4.12% in the week ended January 12, down 8 basis points compared to data from a week earlier. 15-year fixed loans also improved in Freddie Mac’s PMMS survey, with the aforementioned mortgage now carrying a rate of 3.37% nationwide, which is 7 basis points lower compared to data in the prior week. As far as the 5-year adjustable rate mortgage (ARM) is concerned, the interest rate dropped 10 basis points to 3.23% last week, the federal agency’s survey showed.
The unfolding week is going to be a holiday-interrupted one, as financial markets are closed on Monday for Martin Luther King, Jr. day. Nevertheless, the week ahead will be packed with a slew of economic data, which will be watched closely by the Federal Reserve, as well as traders and investors.
Tuesday’s economic calendar is going to be light on influential data, with only a low impact report, the Empire State Manufacturing Index for January due for release. This is an index, which measures the business outlook of manufacturers in the New York region. The consensus expectation is for a reading of 8.0, a slight decline from December’s 9.0 figure.
On Wednesday, the Labor Department will release it’s headline inflation gauge, the consumer price index for December. Economists estimate an uptick of 0.3% month-over-month for the upcoming CPI data. The core CPI, which excludes food and energy prices, likely rose a moderate 0.2% last month, according to the latest projections. The December industrial production index is also scheduled for release on Wednesday. Following a disappointing 0.4% decline in November, economists expect a rebound for last month’s industrial production output. A stronger-than-expected figure could improve overall confidence in the economy.
The Fed’s Beige Book will see the light of day during mid-week, which may garner some attention from market participants, as it provides information about current economic conditions from the U.S. central bank’s perspective.
Fresh jobless claims data, which is scheduled for release on Thursday, will provide us information about the current state of the labor market. According to the latest forecasts, initial claims for unemployment benefits likely increased by 5,000 to 252,000 from a week ago.
Looking at upcoming regional manufacturing data, the Philadelphia Fed’s Manufacturing Business Outlook Survey for January is coming out on Thursday. The latest estimations suggest that regional manufacturing activity in the Philadelphia region declined to 15.1 this month, from 19.7 in December.
The week ahead will also bring us some fresh data on the current state of the nation’s housing market. The NAHB Housing Market Index for January is set to be released on Wednesday and the consensus expectation is a reading of 70, suggesting that homebuilders sentiment remained positive. Another housing data due out this week will reveal the pace of housing starts in December. According to economists’ forecast, housing starts improved 0.9% last month, following a dramatic 18.7% dive in November. As for building permits, analysts forecast a 2.3% increase for December’s data.
Moreover, Fed Chairwoman Janet Yellen, as well as several top U.S. policymakers are set to speak this week, which will be closely watched by market participants for hints on the pace of rate increases in 2017. Currently, the Fed is projecting three rate hikes for 2017, however, the market is currently pricing in just two rate increases.
Despite the recent increases in mortgage rates, they still look better compared to interest rates back in December. If you are interested in buying a home or refinancing your current mortgage, this is certainly a good time to do so. With a few rate hikes projected to take place later this year, nobody knows how long mortgage rates remain at current levels. If you are risk-averse, it could pay off to lock in the lows, while if you’re a gambler, you can always float to see whether mortgage rates could fall leven lower.