Mortgage Rates Have Another Quiet Day

Mortgage rates moved back up today, but continue holding well-inside last week's range – just another quiet one today.  The 10yr note yield increased a little to 2.19% while MBS prices were basically a little off from yesterday’s close.  The news of the day, housing starts and permits in July.  Of course this does not tell the whole story because what occurred in 2000 to 2008 was way too much and massive foreclosures of entire new subdivisions ensued. Permits for new construction, a sign of future demand, fell.  Permits for single-family homes, which account for almost three-quarters of the housing market, slipped also last month. Nevertheless headline readers, mostly Wall Street, see the report this morning as very optimistic. All day long CNBC has been beside itself touting the return of the housing boom.  There is no boom, just better than a year ago but still very low compared to historical data.

Markets looking forward to tomorrow when the minutes from the July 29th FOMC meeting will be released. Usually there are some things in the minutes to chew on. Looking for detailed debate over when the Fed will begin increasing rates. The Fed’s not yet decision has dominated markets for months. When will the increase come? One of the missing links now is the housing sector, Thursday July existing home sales may tilt the table toward September as some have suggested. One and done for a while is what some believe is going to happen - the Fed wants to do it, regardless of the debate. The US economy is not nearly as strong as the headlines lead many to believe and tout to investors - wages stink. Job growth is at its best level in years, 5.3% unemployment.  Look deeper, job seekers may find it easier to find a job, but good luck trying to find a job that pays enough to support a family. That has not gone by Janet Yellen - her favorite wage gauge is the employment cost index.

Beside the FOMC minutes tomorrow afternoon, July consumer price index will be out in the morning.  No sweat about inflation - prices of most every commodity from industrials to agricultural products are falling rapidly. Not news that crude oil is leading the way lower – there is simply not enough global demand to support higher prices. Energy prices make up about 10% of the consumer-price index, so a major drop in oil can cause inflation to fall.

In summary, the bullish bias is losing ground as noted this morning. Still hanging on but losing grip unless a new rally ensues. I continue to favor locking in this environment. The benchmark 10 year note has been unable to make new lows so I do not see much to gain by floating. Locking is the safe move especially with inflation data hitting and the FOMC minutes coming tomorrow.