Good Day For Mortgage Rates 7-12-2017
By James Brooks
The bond market is up 10/32 (2.32%), which should improve Raleigh area mortgage rates slightly.
Kicking off today?s schedule was day one of the Fed?s semi-annual monetary policy update to congress. Her prepared statement was released before her 10:00 AM ET appearance in front of the House Financial Services committee. It indicated that the Fed felt the economy will continue to grow slowly but solidly. They feel the employment sector will continue to add jobs at a decent pace and that consumer and business spending will fuel growth. Inflation is still below preferred levels, which may influence future actions by the Fed.
Today?s proceedings point towards more increases to key short-term interest rates but not at a quicker pace than previously thought. Another point of high interest is what the Fed will do with its massive balance sheet and when they will start selling holdings. It seems that we have been reassured that the reduction in the balance sheet will be slow and will start some time this year. This was in line with previous expectations also. Overall, I believe we are seeing more of a sigh of a relief in the bond market than anything else. A situation where no bad news was good news.
The first of this week?s two important Treasury auctions is also taking place today. 10-year Treasury Notes are being sold today while 30-year Bonds go tomorrow. These sales can influence market trading in bonds and possibly affect mortgage rates. If the sales are met with a strong demand from investors, particularly today's auction, we could see afternoon improvements in bonds that could lead to downward revisions to mortgage rates. However, if buyers stay on the sidelines, we may see bonds fall after results are posted at 1:00 PM ET and mortgage rates move higher during early afternoon trading.
We also have the Fed Beige Book report to watch for at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.
Tomorrow has several more events taking place that have the potential to affect mortgage rates. The first economic data of the week is June's Producer Price Index (PPI) from the Labor Department at 8:30 AM ET tomorrow. It is very important data because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.1% decline in the overall reading and a 0.2% increase in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices, revealing a more reliable inflation reading. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send mortgage rates higher.
Also at 8:30 AM ET will be the release of last week?s unemployment figures. They are expected to show that 245,000 new claims for unemployment benefits were filed last week, down from the previous week?s 248,000 initial claims. Since rising claims hints at employment sector weakness, the higher the number the better the news it is for mortgage rates. However, because this is only a weekly report, it likely will have little impact on tomorrow?s mortgage rates unless it shows a significant variance.
Furthermore, besides the 30-year Bond auction, day two of the Fed?s semi-annual update will take place (Senate Banking Committee) tomorrow. We usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker's prepared words for both appearances are quite similar to each other if not the same, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day's appearance.
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.