Mortgage Rates Continue Pressing New Highs

Mortgage rates continued pressing into new highs for 2015. The DJIA and other key indexes rallied today, but the most rationale we heard was that if interest rates are moving higher and the Fed is about to increase rates then it is all good for the economic outlook. I do not agree with that but that is what is happening these days. Global economies are slipping, the US job quality is not sufficient to stimulate a major increase in consumer spending, and if rates continue to increase it will have a negative effect on home sales (not the case now though as buyers and re-financers are rushing to buy or re-finance with the rapid increase in rates in just eight trading sessions have set off a little panic). Overall higher rates along with appraisals that are not near reality and extreme credit requirements should slow things compared to what we would have if none of the road blocks were there. Although a big surge in hiring nationwide since 2014 has made it easier for young people to obtain jobs and form families, the labor market continues to shut out millions of Americans. Unless more work and attractive job opportunities become available to them, the economy could under perform for years to come.

Greece continues to be a good news bite but most of us are bored with it now, as are the markets. Interest rate markets are not expecting Greece to be booted otherwise we would be experiencing safety trades. Presently no one is paying much attention - nothing out of the negotiations lasts more than the next press conference.

Treasury’s $21B 10yr note auction this afternoon saw good demand, the initial reaction supported rate markets but it did not last. Tomorrow markets will finally get some key economic data this week, as May retail sales expected to show a nice increase compared to sales so far this year, as well as April business inventories and weekly job claims. 

In summary, mortgage bonds cannot catch a break and the trend right now is not our friend. Not locking in this market environment is a gamble and will cost you money. Until we see a shift in the tide it is better to be safe than sorry. The interest rate on the 10yr treasury has increased from 2.12% to 2.49% since June 1st (8 sessions) +37BPS - 3/8ths of a percent. Mortgages up 25BPS - 1/4th of a percent. Major increases in a very short time. This week so far markets have not had to face any significant reports on the economy here or in the global economies. The betting is the economy will continue to gain momentum and that the Fed will increase rates. I would never fight the tape on short term movements, however I do believe that our economy is weaker than is thought now, global economies slowing, and the Fed chomping at the bit to increase rates so it has ammo to lower if my longer outlook proves to be incorrect. The Fed has no bullets to fight another slowdown unless they increase the FF rate soon.