6/23/2017 | Casey Fleming
The dust has settled, so we have been looking for clues as to what investors think about the Fed’s move, and how that will affect mortgage rates. What we can conclude is that either the move was a yawner (we knew that the Fed move was expected) or that investors simply aren’t paying attention. The latter is highly unlikely, so we assume the former is true.
If you look at the chart above you’ll see that bond yields (red line) and mortgage-backed security yields (blue line) rose slightly right before the June 14th meeting, and then fell slightly immediately after the meeting, and have eased down ever so slightly since. Investors were happy, apparently, with their predictions about what would happen at the meeting and what they would say.
I predicted that actual mortgage rates would rise when reported on 6/15, and you can see a very slight uptick (green line) for that week, and then a very slight drop right back down this last week.
However, with bond yields and mortgage-backed security yields falling, as we have learned it should be only a matter of time before mortgage rates follow, if the yields on the underlying indices stay low. So, at this point it is likely we can expect very slightly better rates next week.
Mortgage rates at 2017 low
However, look at the green line and go back to the election on November 7th. You’ll see that mortgage rates today are running at their lowest level since the election. I would expect there to be resistance among lenders about going below this level too quickly. Lenders will break out of the pack cautiously, until competition forces them down.
So, there appears to be an opportunity for those with applications in the process to find a competitive lock from an aggressive lender in the next week or so, provided rates hold where they are.
Looking at the chart above, we can see that the margin between wholesale cost of mortgage money and the retail rates has risen slightly, which is consistent with the notion explained above. But it’s still lower than it has been most of the year, so pressure on lenders to reduce the margin much isn’t really there.
Let’s look at the economic calendar
This week, as I mentioned in my last report, was a VERY quiet week, which tends to be good for bonds as it promotes stability. We had a slight bump in existing home sales and new home sales, but also a very slight bump in weekly jobless claims. As I said, quiet.
Next week we get busy again, and this will be the opportunity for movement in the mortgage rates market.
Monday we will learn about Durable Goods orders in May. After a disappointing April (down 0.8%) another negative number could roil markets. A positive number is more likely, however, as the spring thaw usually brings out buyers.
Core Capital Equipment Orders and the Chicago Fed National Activity Index for May follow sleepy reports from the previous month and will be closely watched, but are not likely to move markets unless they are substantially off April’s numbers.
On Tuesday we get to see the Case-Shiller Home Price Index for April. We all know the housing market is hot, so this isn’t likely to move markets. The Consumer Confidence Index for June also comes out, and it’s been running very hot. Despite the moribund economic growth of the last few years (or maybe because of the very low unemployment rate) consumers seem confident that they will have income in the foreseeable future, and that their economic lives have been improving.
Wednesday is quieter and lacking reports that are typically alarming, so this could be the day to watch for improvement in mortgage rates, assuming Monday and Tuesday’s reports are friendly.
On Thursday we get weekly jobless claims (as always) and a GDP revision for Q1. Both of these have the potential to upset the market, so do not expect price improvements Thursday morning, if underlying rates have improved, until after these reports have come out.
Friday is a busy day again with Personal Income, Consumer Spending, and Consumer Sentiment telling us if consumers are making more and spending or saving it, and how likely it is they will increase spending in the near future, plus Core Inflation telling us how prices have been doing.
Friday is also the last day before a holiday week the next week. It seems very unlikely – barring major surprises in market information – that rates would improve on Friday. Even though Monday is NOT a holiday and the markets will be open, lots of folks will be taking the week off. It is therefore much more likely rates will back up a little as lenders hedge their bets.
Mortgage rates: what to watch for
After the stability of the last three weeks, look for a breakout from the pattern the early part of week of June 26th. Up or down is hard to call at this point, but improvement seems more likely than not, especially given the very small bump in rates leading up to the Fed meeting last week. Investors seem happy with yields where they are – for now.
This article represents the opinions of Casey Fleming, and not necessarily those of C2 Financial Corp. This analysis was prepared with the best information available at the time it was written. Neither Casey Fleming, nor C2 Financial Corp., have any magical insider information about bond markets, real estate markets or mortgage markets that would make economic projections any more reliable than any other source. No warranty is made that the outcome will reflect the projections in this article, and neither Casey Fleming nor C2 Financial Corp. are responsible for decisions that you make regarding your own choices about your real estate or mortgage or those of your clients.
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