Mortgage Rates In Rough Shape

Mortgage rates started the day in fairly rough shape with most lenders offering noticeably higher rates vs yesterday.  As stock markets slid into the afternoon, the bond markets that underlie mortgage rates improved.  The most prevalently-quoted conforming 30yr fixed rate for flawless scenarios remains 4.25%, but 4.375% is coming more into play.

Both the stock market and the interest rate markets opened weaker this morning following through on yesterday’s selling. The 10yr early this morning hit 2.61%, its 100 day average - the stock market opened -102 (DJIA). It looked bad both technically and from a fundamental perspective. It got worse this afternoon for equity markets and that brought support to treasuries and MBS markets. Our regular readers will recall that six weeks ago we were expecting a major decline in the stock market, we waited and it didn’t happen; we were too early in our forecast. Now it is happening, triggered by the upward revision of Q1 GDP and the preliminary Q2 GDP yesterday up 4.0%, markets were not expecting growth to be more than 3.0%.

The FOMC meeting yesterday issued the policy statement that was not much different than previous FOMC statements recently. Inflation is still tame, job creations improving but worries about the quality of jobs was cited. The meeting concluded with the pledge the Fed will continue to keep interest rates low for longer than thought. The markets took the policy statement to the round file and are ignoring the feel good statement. It looks like traders and investors are now very concerned that inflation is beginning to boil regardless of the Fed’s view.

Tomorrow the July employment report is expected to show jobs grew by 230K both overall and private jobs; the unemployment rate at 6.1% unchanged. The headiness though is not as critical as the details - the labor participation rate, average hourly earnings, and what sectors of the economy did jobs increase. While the focus is on employment June personal income and spending is also a key release tomorrow, the report has the PCE (personal consumption expenditures) a key inflation gauge. Also tomorrow, the July ISM manufacturing index and June construction spending will be released.  Tomorrow has all the ingredients for more V O L A T I L I T Y. 

In summary, our busy week wraps up tomorrow with the release of the Employment Situation Report. In my opinion, I think a pretty good report is baked in already, so I favor floating especially if you have more than a couple weeks until close. As always, if you are happy with the rate and fee structure of current offer, locking is the safe move. Only those that can afford the risk of a higher rate or fee structure should consider floating.