Mortgage Rates Steady - Fed Likely to Increase Rates in September

Mortgage rates are steady this morning, but was anticipating some positive movement after yesterday’s rally.  The MBS market improved by +5BPS yesterday, but was not enough to improve mortgage rates or fees.  

Existing-home sales rose 1.1% to a seasonally adjusted annual rate of 5.57 million in June, the National Association of Realtors said Thursday. That was 3% higher than a year ago and the strongest since February 2007. First-timers made up 33% of all purchases, the most in four years, while the share of investor purchases declined to 11%, the lowest since July 2009. Supply was 5.8% lower than a year ago, the 13th consecutive month of yearly declines.

The FOMC meeting next week is likely to show more confidence within the Fed that a rate increase will happen, likely in September. The economy has improved and the Fed wants so badly to make another increase that we doubt now that the Fed will miss again as it has a couple of times in the last 18 months. There were two opportunities in the past, mid-2015 and late 2014. The economic data was improving but the Fed took a pass, since those misses still resonate it is likely with the better economic outlook now and the recent rise in the equity market the Fed will have another chance in September. How will the FMC policy statement frame it? Data dependent passes muster now, and employment continues to improve and investors and markets have pushed aside the UK exit. September is a window - will the Fed open it? No inflation on the horizon may keep the Fed with its hands in its pockets - a Federal Reserve measure of expected price gains touched the lowest since at least 1999 this month.

According to Sigma Research: "Six days and counting; the 10yr note yield has tested its technical support at 1.60% every day since last Friday and is doing it again today. Selling has ebbed but equally investors still enamored with better returns in the equity market. Today is likely to be another quiet session ahead of the weekend and next week’s FOMC meeting. NO rate increase next week and the September meeting is trading only a 20% chance based on FF futures markets."

While floating has not hurt or benefited anyone that much this week, I suggest that you still remain cautious and keep your eye on the 10yr, which is at 1.57% at 11:00AM.  I doubt that prices will decline, but I cannot predict the future with everything that is now affecting the markets.