Mortgage rates held perfectly steady on Tuesday, as bonds bounced back, ahead of the impending Fed rate hike. Despite imporvements in the underlying bond market, mortgage interest rates didn’t budge. The most prevalently quoted rate on the 30-year fixed mortgage remains at 4.375%, but many loan providers are offering this type of loan at a rate of 4.500%. Generally, lenders have been hesitant to pass along the recent gains, as it’s widely expected that the U.S. central bank will lift the benchmark federal funds rate by a quarter percentage point later this afternoon at the March FOMC meeting. Fed policymakers will wrap up their two-day meeting on Wednesday, followed by a press conference by Fed Chairwoman Janet Yellen.
In the secondary market, the top-rated 10-year treasury note closed Tuesday’s trading day at a yield of 2.60%. This marks a 2 basis points slide over the previous 2.62% from a day earlier. Usually, when the benchmark 10-year treasury yield falls, mortgage rates follow suit. However, all signs point to a rate increase this Wednesday, therefore lenders have been cautious adjusting their mortgage pricing. The 30-year treasury yield closed the trading session at 3.17%, down 3 basis points compared to the yield a day earlier.
Pricing on mortgage-backed securities (MBS) started this Wednesday in the green. Ultimately, the fate of today’s mortgage rates will be decided by the outcome of the FOMC meeting, as well as the language of the policy statement.
The market believes that a rate hike in March is a done-deal, and already baked into the market, therefore the decision to raise rates won’t have a major impact on mortgage rates. At the same time economists expect that the central bank will accelerate its forecast for future rate rate hikes. Investors are now looking for forward guidance from the Fed in terms of future monetary policy. If the economic projections of the FOMC members are rather bullish, signaling a faster tightening path, mortgage rates will move higher. On the other hand, a dovish tone from the Fed may send mortgage rates lower, but don’t expect big gains.
On the economic front, a few first-tier reports came out this Wednesday, ahead of the FOMC rate decision. The Commerce Department reported Wednesday, that retail sales rose 0.1% in February, matching economists’ forecast. At the same time, the gains for January were revised up to 0.6%. Core retail sales, which excludes automobile sales, gasoline, food services and building materials, were up by 0.1% last month versus the expectations of a 0.2% increase.
The Labor Department released a fresh report on its headine inflation gauge earlier today. The U.S. consumer price index (CPI) rose 0.1% in February and 2.7% year-over-year, according to the latest data. February’s CPI is in line with the consensus expectation. As far as core inflation is concerned, which strips out volatile food and energy categories, it increased 0.2% over the prior month and 2.2% on a year-over-year basis.
Manufacturing activity in the New York region stayed strong this month, according to the Empire State general business conditions index released today. Although, the index decreased 2.3 points to 16.4 in March from 18.7 in February, the current reading still indicates improving conditions in the sector. This marks the fifth consecutive month that the index shows expansion in the New York-area manufacturing sector.
Looking at the latest housing market reports, the National Association of Home Builders released its homebuilder sentiment index for March. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) jumped 6 points to 71 this month, the highest reading in almost twelve years, signaling that homebuilder confidence remains high. „Builders are buoyed by President Trump’s actions on regulatory reform, particularly his recent executive order to rescind or revise the waters of the U.S. rule that impacts permitting,” said NAHB Chairman Granger MacDonald. A reading above 50 indicates that more builders are viewing conditons as good rather than bad.
Ultra-low mortgage interest rates face a possible danger today. Everyone expects that the Fed will raise rates this Wednesday afternoon. While there’s no guarantee that a rate hike would cause mortgage rates to go up, but if the Fed signals faster pace of future adjustments, it will have an effect on financial markets. That means mortgage rates will most likely rise. On the other hand, a dovish tone on the pace of future rate hikes could send mortgage rates lower.