Mortgage Rates
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Today’s Potential
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Today’s Mortgage Rate Summary

How Rates Move:

Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market.  This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events.  When MBS pricing goes up, mortgage rates or pricing generally goes down.  When they fall, mortgage pricing goes up.  Tracking these securities real-time is critical.  For more information about the rate market, contact me directly.  I’m among few mortgage professionals who have access to live trading screens during markethours.

Rates Currently Trending: Neutral

Mortgage rates are trending unchanged this morning.  Last week the MBS marketworsened by just -1 bps.  This was not enough to worsen mortgage rates or  fees.  The MBS market was fairly calm last week.

Today’s Rate Forecast: Neutral

Three Things: These are the three areas that have the greatest potential to influence mortgage rates: 1) Jobs data, 2) The Fed and 3) Manufacturing data.Jobs: Friday’s Non-Farm Payrolls report will get the most attention. The market is expecting a reading around 180K, but if it tops 200K, then you will a migration into the September rate hike camp. But don’t forget about Average Hourly Wages which may actually carry more weight with the Fed as the YOY wage growth was a blistering 2.6% if we stay at that level or increase it, then it will be very negative for mortgage rates. But this data wont hit until Big Jobs Friday. We actually have a ton of jobs/wages data this week before Friday. We started today off with Personal Income witch rose a nice 0.4% in July, plus the June reading was revised upward.On Wednesday we get the ADP Private Payrolls report and then on Thursday we get the Challenger Job Cuts, Initial Weekly Jobless Claims and Unit Labor Costs. We also get ISM Manufacturing which has an internal labor component. Fed: Last week, we heard from the three most important voting members – Yellen, Fischer and Dudley and all three tried to make it clear to the markets that progress has been made towards the Fed’s goals and that September is very much a “live” meeting. We will be paying very close attention to see if the overall “hawkish” tone from last week is continued other Fed speakers this week. Manufacturing Data: Is the economy growing? At what pace? Our manufacturing data will give us the answers. We start off with Chicago PMI which is expected to show very strong expansion with a reading over 54. Then we get the national data with the ISM report which is also expected to be expansionary with a reading over 52. We round out the week with Factory Orders which is forecasted to also show some decent gains.

Today’s Potential Rate Volatility: Low

Like last week, the highest potential for enough volatility in mortgage rates to move us out of this extremely tight range will happen on Friday. The Fed is looking for strong employment numbers to give them the ammo needed to increase rates. If this happens, we could see a pop in mortgage rates.

Bottom Line:

If you are looking for the risks and benefits of locking your interest rate in today, contact your mortgage professional to discuss it with them.

Daily Market Analysis

At 8:30 July personal income and spending; income up 0.4% and spending up 0.3%, both as were expected. June income revised from +0.2% to +0.3%, June spending revised from +0.4% to +0.5%. Yellen’s favorite inflation reading, PCE, unchanged in July, the core though +0.1%. Yr/yr PCE +0.8% but the core +1.6%. Spending and income continue to reflect the Fed view that consumers are still spending and income increasing. There was no noticeable reaction to the better report.

At 9:30 the DJIA opened +75, NASDAQ +12, S&P +8. 10 yr 1.60% -2 bp. FNMA 3.0 30 yr coupon +8 bps from Friday’s close and -19 bps from 9:30 Friday.

This is a big week for data and Fed speakers, although the Fed speakers won’t have anything new to espouse and even if there is some new spin markets no longer pay too much attention. Employment leads the data parade but as you can see from the calendar there are a number of key reports. Markets continue to handicap when the Fed will actually put its money where its mouths have been. Yellen and other Fed policy makers (Yellen, Fischer and Wm. Dudley) are hanging by a thread, continuing to talk about a rate increase but walking away when it gets down to it. This time I suspect the Fed will increase rates in December, not in Sept. The Fed’s track record forecasting the economic outlook has been off the mark now for at least three years. Always seeing the sunshine then revising lower its forecasts.

Yellen’s speech last Friday pushed interest rate higher, most at the middle and short end of the curve; the 5 yr note yield increased 7 bps and the 2 yr up 6 bps. The 10 up 4bp and the 30 up 3 bps. Flattening of the curve as should be expected if short term rates are expected to increase. Friday the dollar strengthen against the yen, the euro and the dollar index increased; driven by Yellen. Still there are a number of Fed officials that don’t want an increase now, this is a bad movie that has no end and just keeps rewinding so we have to see it over and over and over.

Bank of Japan Governor Haruhiko Kuroda said on Saturday that “there is no doubt that there is ample space for additional easing in each of the three dimensions.” He was referring to negative interest rates, monetary-base guidance, and asset purchases. Kuroda went on to say, “The Bank of Japan will continue to carefully examine risks to activity and prices at each monetary policy meeting, and take additional monetary policy measures without hesitation.” The Bank of Japan will meet Sept 20th, the Fed’s FOMC meeting is Sept 20 and 21; in the meantime the ECB will meet on Sept 8th. ECB buying private debt recently n another effort to increase economic activity. Central banks around the world including the Fed are running economies; not doing well so far in Japan and Europe.

Beside all of the data this week leads to a short week next week for the Labor Day holiday that marks the end of summer for going to the Hamptons. Expect an early close on Friday.

This Week’s Calendar:

Monday,

8:30 am July personal income and spending (as reported income +0.4%, spending +0.3%)

Tuesday,

9:00 am June Case/Shiller home price index (+5.2%)

10:00 am August consumer confidence index (97.3 unchanged from July)

Wednesday,

3:15 am Eric Rosengren Boston Fed

7:00 am weekly MBA mortgage applications

8:00 am Neel Kashkari Minneapolis Fed

8:15 am August ADP private jobs (+175K)

9:45 am August Chicago purchasing mgrs. index (55.2 from 55.8 in July)

10:00 am July pending home sales from NAR (+0.6%)

3:15 pm Charles Evans (Chicago Fed)

Thursday,

8:30 am weekly jobless claims (265K +4 K)

Q2 revisions of productivity and unit labor costs (productivity -0.6% from -0.5% on the initial report; unit labor costs +21.% from 2.0%)

10:00 am August ISM manufacturing index (52.2 from 52.6 in July)

July construction spending (+0.6% after -0.6% in June)

12:25 pm Loretta Mester Cleveland Fed

Friday,

8:30 am August employment data (unemploy 4.8% unch from July; NFP jobs +175K, private jobs +179K, average hourly earnings +0.2%0

July trade balance (-$41.3B from -$44.5B in June)

10:00 am July factory orders (+2.0% from -1.5% in June)

1:00 pm early close for Labor Day

Jeffery Lacker Richmond Fed

PRICES @ 10:00 AM

10 yr note: +11/32 (34 bp) 1.60% -2 bp

5 yr note: +6/32 (18 bp) 1.20% -3 bp

2 Yr note: unch 0.84% unch

30 yr bond: +30/32 (94 bp) 2.25% -4 bp

Libor Rates: 1 mo 0.524%; 3 mo 0.833%; 6 mo 1.231%; 1 yr 1.536%

30 yr FNMA 3.0 Sept: @9:30 103.60 +8 bp (-19 bps from 9:30 Friday)

15 yr FNMA 3.0: @9:30 104.68 +9 bp (-10 bp from 9:30 Friday)

30 yr GNMA 3.0: @9:30 104.50 +10 bp (-15 bp from 9:30 Friday)

Dollar/Yen: 102.23 +0.40 yen

Dollar/Euro: $1.1169 -$0.0018

Gold: $1323.90 -$2.00

Crude Oil: $46.83 -$0.81

DJIA: 18,489.48 +94.08

NASDAQ: 5233.89 +14.97

S&P 500: 2178.91 +9.87