Mortgage rates couldn’t catch a break on Tuesday, as they continued moving higher following a selloff in the bond market. U.S. treasury bonds pulled back for the second straight session as concerns over Greece’s impending debt payment eased, thus investors turned their attention to riskier assets. Additionally, pricing on mortgage-backed securities (MBS), which lenders use to determine their rate sheets, slipped today, which is why you may see slightly higher mortgage rates at your lender. While most lenders may not quote significantly higher mortgage rates on popular conventional loans this Tuesday, borrowers could see the impact of today’s weakness in the bond market in slightly higher closing costs.
On Tuesday, the yield on the benchmark 10-year treasury note spiked near to its highest level since September. The aforementioned treasury note finished the trading session at 2.42%, a 5 basis points increase compared to Monday’s 2.37%. The yield on another U.S. government bond, the 30-year treasury note ticked up as well, closing the session at 3.20%, an uptick of 4 basis points compared to yesterday’s data.
Today three pieces of economic data were released, including fresh reports on new home sales, regional manufacturing activity and the latest durable goods orders data. The latest batch of housing market data suggests, that the sector is gaining speed. Coming on the heels of May’s existing home sales data released Monday, which included better-than-expected figures, today another strong housing report saw the light of day. According to the Commerce Department’s latest data, sales of newly-built homes surged 2.2% to a seasonally adjusted annual rate of 546,000 units in May, which marks the strongest pace of new home sales since February 2008. This is a much better figure than the consensus expectation (an increase of 525,000 units) and indicates that the housing sector remains one of the bright spots that lead the economic recovery. On the other hand, April’s new home sales data was revised up from the initally reported 517,000 units to 534,000, the Commerce Department reported.
It looks like the manufacturing sector is showing some signs of life, as the Richmond Fed Manufacturing Index rose from a modest 1.0 in May to 6.0 in June, according to the latest data. The increase in manufacturing activity was bolstered by a surge in new orders.
Another economic report released Tuesday, showed that total orders for durable goods fell 1.8% in May. Previously, economists had forecast a decline of 1% for the headline durable goods orders data. Also, April’s figure was revised lower from a contraction of 0.5% to a contraction 1.5%. However, when transportation orders are excluded of the equation, May’s durable goods orders data shows a gain of 0.5%, matching the consensus expectation. While the current headline durable goods orders data is not a strong one, it clearly shows that the figure was strongly impacted by a sharp drop in aircraft orders. Still, orders for non-military capital goods, which is a category that reflects business investment plans, posted a gain of 0.4% in May, following a decline of 0.3% in April. This is a promising sign that a recovery in the manufacuring sector is slowly gaining steam.
In other news, a top Fed official chimed in today with his own opinion regarding the U.S. central bank’s planned rate hike. Fed governor, Jerome Powell expressed his support for a raise in short-term interest rates in September, with an additional rate hike coming in December. The Fed governor added that there’s 50 percent chance that the U.S. central bank will lift interest rates in September. According to Powell, increases in rates will likely occur at a gradual pace and the precise timing and pace of rate hikes will depend on how the economy performs. Since last Friday, Powell is the third member of the Fed who expressed an opinion on where rates could head over the course of 2015.
As we reported on Monday, San Francisco Fed President John Williams expressed last Friday, that he remains in a wait-and-see mode regarding the U.S. central bank’s interest rate policy, until there’s more evidence that inflation will move back to the target level. Provided that economic conditions are improving and meet expectations, Williams expects the Fed to take action and hike rates twice this year. On the other hand, Cleveland Fed President Loretta Mester said on Friday that she thinks „the economy can support a 25-basis point increase in interest rates”.
Coming back to mortgage rates, given the current extreme market volatility and the fact that the Fed aims to raise the benchmark fund rate later this year, it’s unlikely to see a scenario where rate levels head back below 4%. It’s possible to see such a scenario, but it’s unlikely at this point. And due to the huge market volatility that we have been experiencing lately, it remains very dangerous to float ahead. With that in mind, if you are looking to get a new mortgage loan these days, it’s better to lock a rate sooner rather than later.
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