Mortgage rates jumped late last week, following the release of an exceptionally strong Non-Farm Payrolls report. October’s Employment Situation numbers surpassed expectations big time, which shocked financial markets and as a result government bond yields skyrocketed. Pricing on mortgage-backed securities (MBS), which are bonds that ultimately dictate mortgage rates, declined substantially. Loan providers updated their rate sheets accordingly, which is why you could see, that the average lender is quoting the 30-year fixed mortgage rate in the range of 4.000% – 4.125% in the beginning of the new week. Current mortgage rates are close to the highest levels since July. Moreover, the better-than-expected jobs report bolstered expectations among investors and money managers, that the Federal Reserve will raise its overnight rate at the next FOMC meeting in December.
In the secondary market, the yield on the benchmark 10-year treasury note finshed Friday’s trading session at 2.34%, the highest closing level since late July. Meanwhile, the long-term 30-year treasury yield came out at 3.09% at the end of the trading day, which translates to an 8 basis points increase since Thursday.
Current national mortgage rates are higher compared to interest rates a week earlier, according to mortgage-buyer, Freddie Mac’s latest weekly Primary Mortgage Market Survey (PMMS) released on Thursday. The Federal agency’s latest mortgage survey showed, that the average interest rate on the 30-year fixed mortgage rose to 3.87% in the past week versus 3.76% a week earlier. At this time last year, the 30-year FRM averaged 4.02%. According to the mortgage-finance company’s PMMS survey, on average lenders were offering the 15-year fixed mortgage at a rate of 3.09% last week. This marks a 11 basis points increase compared to rates in the prior week. Back in 2014, the average rate on the 15-year fixed loan was hovering at 3.21%.
Looking at flexible mortgage loans, the 5-year Treasury-indexed hybrid ARM came out at 2.96% last week, down from the previous 2.89% it held a week earlier. The same time a year earlier, the 5-year ARM averaged 2.97%. In case of the 1-year adjustable rate mortgage, the national average rate ticked up to 2.62% last week compared to 2.54% in the prior week. A year ago at this time, the 1-year ARM averaged 2.45%.
On Friday, this month’s most influential domestic economic data, October’s jobs report got released and as we mentioned above the outcome of the report shocked markets. The latest NFP data showed, that the economy added 271,000 jobs last month, which is the strongest employment data this year, and a significantly better reading than the consensus forecast of 190,000 jobs. The latest jobs data signals that hiring at U.S. companies shifted into a higher gear in October.
As the monthly NFP data is closely monitored by the Fed, expectations are growing among market participants, that the current strong jobs report could pave way for the central bank to hike rates for the first time in almost a decade at its upcoming monetary policy meeting in December. Right now, the CME FedWatch tool, which is used by investors and traders to predict future central bank policy, is pricing in a 70% probability of a rate hike to take place at the upcoming Fed meeting next month.
Coming back to Friday’s jobs report, it also showed, that the unemployment rate ticked down to 5% from the previous 5.1%, while workforce participation rate stayed intact at 62.4%. Average hourly earnings bounced back in October, moving up 0.4% from last month. The consensus expectation was for a 0.2% increase.
The first half of the unfolding week is going to be quite slow in terms of influential economic data. However in the second half of the week some important reports will see the light of day, in the form of September’s JOLTS data, October’s retail sales report, fresh reading on producer price index, as well as the latest consumer sentiment data. The upcoming week will bring us a lot of Fedspeak, which may shed some light on the U.S. central bank officials’ thinking regarding a liftoff in rates, following an extremely strong NFP data. We anticipate that markets will keep digesting the latest jobs data in the first few days of the week, therefore we don’t expect significant changes in mortgage rates until the second half of the week.
The Labor Department will release the latest jobless claims figures on Thursday, and according to economists the number of initial claims for unemployment benefits likely slipped to 270,000 versus 276,000 a week earlier.
The Job Openings and Labor Turnovery Survey (JOLTS) for September is scheduled for release on Thursday. In case the report turns out positive, it will indicate that workers have more confidence in the job market. Economists estimate that job openings likely dropped to 5.385 million in September. The most recent JOLTS report for August, showed job openings declining to 5.37 million from 5.67 million in July.
One of the most influential data of the week is going to be October’s retail sales report, which is set to be released on Friday. If the upcoming data turns out solid, it could signal that the economy is gaining traction in the fourth quarter. The latest retail sales reading from September was a disappointing one, indicating a 0.1% increase. Core retail sales, which don’t include automobiles and gas, edged down 0.1% in September.
Furthermore, this week’s economic calendar includes fresh data on producer price index and consumer sentiment as well. All of the above mentioned domestic reports can impact markets in one way or another and indirectly mortgage rates as well.
So current mortgage rates are rising and as October’s jobs data came in hot, expectations are growing that the Fed would raise rates next month. This is a likely scenario, and if that happens mortgage rates are expected to rise accordingly. If you are looking to buy a new or used home or you want to refinance your existing mortgage, we advise you to take action before the upcoming Fed meeting, as the likelihood of a December rate hike is rising.
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