Mortgage rates were mixed on Thursday, as the 30-year treasury bond auction drew weak demand from investors, which cooled a rally in the bond market. While U.S. government bonds started Thursday morning in a better shape, with some mortgage lenders issuing updated rate sheets with lower rates, some of these gains have evaporated following the $12 billion 30-year treasury bond auction, as the demand was somewhat softer than market participants had anticipated. With that said, current mortgage rates are similar to those seen yesterday at many lenders, while at others, the changes can be seen in higher upfront costs. The most prevalently quoted interest rate on 30-year fixed mortgages is still 4.125% in best scenarios.
The benchmark 10-year treasury yield closed Thursday’s trading session at 2.36%. The yield on the 10-year note dropped as low as 2.305% yesterday, the lowest level since Nov. 30, before bouncing back to finish at 2.358%. As mortgage interest rates tend to follow the direction of the 10-year treasury yield, you may see slight changes in borrowing costs at your lender. However, as mentioned above, the changes most likely will effect upfront costs as opposed to the contract rate itself. The long-term 30-year treasury yield finished the trading day at 3.01%, which marks a 5 basis points increase compared to Wednesday’s data.
Mortgage-backed securities (MBS) started the day in the red, which means mortgage interest rates could finish the week on a negative note.
Current mortgage interest rates are lower nationwide, according to McLean, VA-based mortgage buyer, Freddie Mac. The federal agency reported on Thursday, that the 30-year fixed mortgage averaged a rate of 4.12% in the week ended January 12, down 8 basis points from 4.20% a week earlier. On average, mortgage lenders were offering 15-year fixed loans at a rate of 3.37% in the past week, a decline of 7 basis points compared to data from the prior week, according to Freddie Mac’s latest Primary Mortgage Market Survey (PMMS). In case of flexible mortgages, the 5-year ARM was offered at a rate of 3.23% last week, down 10 basis points from the previous 3.23% a week earlier.
In terms of domestic economic data, this week’s highlight is the December retail sales report, which got released this Friday. According to the Commerce Department, retail sales increased a seasonally adjusted 0.6% last month, following a 0.2% uptick in November. When the auto sector taken out of the equation, retail sales rose a disappointing 0.2% in December. Overall, this is a weaker-than-expected data, which could potentially signal weaker economic growth in Q4 2016.
The U.S. producer price index, which measures the prices of services and goods before they reach consumers, rose a seasonally adjusted 0.3% last month, according to the Labor Department’s data released on Friday. Last month’s gain was driven by a surge in wholesale gas prices, which rose 7.8%. The current U.S. PPI figure is in line with economists’ forecast.
On Thursday, a number of Fed officials made public appearances and shared their views on monetary policy. As we reported yesterday, Philadelphia Fed President Patrick Harker said in prepared remarks in Malvern, Pennsylvania, that three rate hikes could be appropriate in 2017, assuming the economy stays on track. When speaking to Barron’s on Thursday, top Fed policymaker, St. Louis Fed President James Bullard stuck with his position, saying that he expects only one rate increase this year.
Chicago Fed President Charles Evans also made a public speech on Thursday. Evans said, that three rate liftoffs could be „entirely plausible”, if the economy is strong enough. On the other hand, Atlanta Fed President Dennis Lockhart expects gradual rate increases and sees two rate hikes in 2017.
Although, Fed officials and analysts alike expect a few rate hikes this year, more and more investors seem focused buying bonds and adding them back to their portfolios. As the details of President-elect Donald Trump’s economic policies unknown at this time, analysts believe that bond yields have more room to decline. And if that happens, mortgage rates will benefit. Still, longer-term economic trends are favoring higher mortgage rates. With that in mind, borrowers who are looking to secure a mortgage loan for home purchase or refinancing, better lock a rate sooner rather than later.