As Economy Gets Stronger Mortgage Rates Increase 2-14-2018

By James Brooks

The bond market is down 18/32 (2.89%), which should push Raleigh Area mortgage rates higher by approximately .250 of a discount point.

The Commerce Department gave us the first of this morning?s two important releases by posting January?s Retail Sales data at 8:30 AM ET. It showed a 0.3% decline in consumer-level sales, falling well short of the 0.2% increase that was expected. Even a secondary reading within the report that tracks more costly and volatile auto transactions came in well below forecasts (0.0% vs +0.4%). This data indicates that consumers spent much less last month than many had thought. Because consumer spending makes up over two-thirds of the U.S. economy and bonds tend to thrive in weaker economic conditions, this was very good news for the bond market and mortgage rates. Unfortunately, traders are paying more attention to the second release of the morning.

That release was January's Consumer Price Index (CPI), also at 8:30 AM. This index measures inflationary pressures at the consumer level of the economy. Today?s report showed a 0.5% rise in the overall reading and a 0.3% increase in the core data. Forecasts were calling for increases of 0.3% and 0.2% respectively. The core reading is the more important of the two as it excludes more volatile food and energy prices. The larger than expected increases indicate inflationary pressures at the consumer level of the economy were stronger than analysts were predicting. That is bad news for bonds and mortgage rates because rising inflation erodes the value of a bond?s future fixed interest payments, making them less appealing to investors. It also allows the Fed to be more aggressive with monetary policy, particularly increase to key short-term rates. It was this report that took center stage and led to this morning?s bump in mortgage rates.

Tomorrow also has two monthly economic reports set for release in addition to the weekly unemployment update. The first is January?s Producer Price Index (PPI) at 8:30 AM ET. It is the sister report to today?s CPI, but measures inflationary pressures at the producer level of the economy. As with the CPI, there are two headline readings. They are expected to show an increase of 0.3% in the overall reading and a 0.2% rise in the core data. Good news for bonds would be a decline in both readings, particularly the core data as it would ease concerns about future inflation that makes long-term securities less attractive to investors. However, after today?s CPI results, its hard to be optimistic about tomorrow?s release.

January's Industrial Production data will be posted at 9:15 AM ET tomorrow. It helps us measure manufacturing sector strength by tracking output at U.S. factories, mines and utilities and can have a moderate impact on the financial markets. Analysts are expecting to see a 0.2% increase in production levels from December to January. A decline in output would be good news for bonds and mortgage pricing.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now.

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