Mortgage rates shifted slighty higher on Monday, as the bond market pulled back, amid fears that the Federal Reserve will raise short-term interest rates in September. St. Louis Fed President James Bullard said in an interview with the Fox Media Network on Monday, that he sees more than 50% chance that the U.S. central bank will hike rates at the FOMC policy meeting in September. Bullard, who is not a voting member of the FOMC committee right now, previously stated the the Fed has kept interest rates near zero levels for too long. The top Fed official believes a couple of rate rises could take place this year, provided that the economy gets back on track and inflation target levels are met. Most analysts believe that the the Fed will start tightening its monetary policy the first time in nearly a decade at the September policy meeting.
Last week, Fed Chairwoman said to the Congress that she expects U.S. central bank policy makers to act this year and raise short-term rates at a gradual pace. While the majority of Fed members are supporting the idea of a rate hike in 2015, some financial organizations, including the World Bank and the International Monetary Fund have warned the Fed last month, to delay the liftoff in rates until early 2016.
U.S. treasury bonds fell today, following Bullard’s comments on rate hike, with yields on 10-year and 30-year treasury notes moving up slightly. The yield on the benchmark 10-year treasury note finished Monday’s trading session at 2.38%, which translates to a 4 basis points uptick compared to data from Friday. The long-term 30-year treasury yield edged up to 3.10% at the end of today’s trading session, according to the latest market data.
National mortgage rates increased last week, according to Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS). The average mortgage rate on the 30-year fixed conventional loan is now hovering at 4.09%, an uptick of 5 basis points compared to data from the prior week. This is the highest average mortgage rate on the 30-year FRM in 2015, according to the mortgage-buyer’s data. The same time a year ago the 30-year fixed loan averaged a rate of 4.13%. The federal agency’s weekly survey also revealed, that the 15-year fixed mortgage loan averaged a rate of 3.25%, an increase of 5 basis points compared to data from a week earlier. A year earlier at the same time, the 15-year fixed mortgage came in at 3.23%.
The first part of the week looks to be uneventful in terms of domestic economic data, which means that economic headlines from the Eurozone could have more impact on the U.S. bond market in the next few days. And as we said it before, we anticipate less market volatility this week, which could potentially lead to smaller swings in mortgage interest rates. In the second half of the week we will get some important housing market data, as well as some regional manufacturing reports. The housing industry is still considered one of the bright spots of the economic rebound, so it will be interesting to see if the positive momentum continues for the housing sector.
While historically current mortgage rates still look very attractive, the interest rate on the 30-year fixed mortgage is now about 25 basis points higher than it was back in May. Mortgage rates have been trending higher since early May, and with a rate hike expected to take place later this year, it’s rather unlikely that we will see 30-year mortgage rates return below 4% by the end of 2015. It’s possible to imagine a scenario where 30-year mortgage interest rates would move below 4% again, but we believe there’s a better chance that they will finish the year around 4.25%. Currently, it’s anybody’s guess whether the initial rate hike is priced into bonds already, but once the liftoff happens, bond yields will rise and mortgage rates will increase accordingly.
Overall, if you are looking to get a mortgage these days in order to refinance or buy a home, probably it’s a wise decision to act quickly and lock a rate, especially if you are risk-averse. On the other hand, you can always gamble on the opposite, that interest rates will eventually fall to extremely low levels, but only float if you can afford to be wrong.
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