Mortgage Rates Sideways - Are They Getting Better?

Mortgage rates are moving sideways again today, as the market experienced high volatility yesterday.  We saw the improvement yesterday, but this morning it was being given back until the recently where we are seeing the markets again rally for the better in relationship to mortgage rates.  At 11:00AM, the 10yr is at 2.21% and the MBS are again in positive territory after being down nearly 30BPS.

We continue to get mixed readings from inflationary data points as today’s Producer Price Index fell short of expectations. The headline MOM (month over month) reading was 0.0% vs of 0.3%. The Core PPI data point which came in at 1.2% which matched last month's reading but was lower than the 1.5% estimates.

Weekly Mortgage Applications plummeted -9.2%. You guessed it - that was due to a big drop off in refinances of -11%. This is from the week that just saw about -200 of our -300BPS sell off in mortgage backed securities. The NAHB Home Builders Index matched expectations of 63 which was also last month's reading. Very strong considering anything above 50 is positive.

Industrial Production was lighter than expected and Capacity Utilization also fell short of estimates. Most of the miss is due to a continued decline in the mining /energy sector.

We have had some Fed Presidents speak already today, but you know what I feel about their rhetoric.

Trumps plans to increase fiscal spending (about $550B) has driven inflation forecasts higher. Construction jobs and suppliers pay a higher wage than service sector jobs also influencing the outlook for more economic growth than was thought prior to the election. Re-doing health care also is being seen to increase disposable income for many consumers. Increased fiscal spending will sweep into Europe and increases in Japan as monetary policies have run out of gas - no appreciable increases in growth for five years of monetary stimulus now will move to more debt and higher interest rates. Increased infrastructure spending however will take time to engage.  Like Obama found out, there is not many projects on the drawing boards and Congress will have its say about how to pay for increased spending but in the end the federal deficit is going to increases under Trump if his plans are implemented as currently expected. I still believe the markets have over-reacted now and consolidation and some price improvements are possible at these present levels.

Mortgage rates continue to be very volatile. Yesterday's improvement in mortgage rates was to be expected. So far, we might be seeing it continue even though it did not start out that way.  Mortgage rates continue to show a great deal of intra-volatility and we don't expect that to change this week.