Mortgage Rates Up a Bit - But Still Stable

Mortgage rates are inching up today with some positive economic news that beat expectations, along with the news out of Germany regarding their minor increase in inflation. Yesterday, we had another technical failure for the bellwether 10yr note at 2.32%, the rock resistance that I have been talking about for weeks now. Thus far at 10:30AM, the 10yr up to 2.38%, up 5BPS from yesterday’s close.  MBSs are following suit as it is at a negative 22BPS.

The news this morning showed Weekly MBA mortgage applications last week were down 3.1%, but I anticipated that with the holidays.  But the big news was the preliminary Q3 GDP as expected up 3.3% after 3.1% was reported last month on the advance report. Then later we got the NAR October pending home sales, expected +1.0%, increased 3.5%. Inventories remain low. The lowest inventory level now since 1991. Pending sales are signed contracts but not yet closed.

The Senate Budget Committee passed the tax cut bill yesterday, setting up a vote by the Senate that is still expected tomorrow. It must have all but two Republican votes to pass; Republicans can afford no more than two defectors. Looks increasing likely the Senate will pass it. Then on to conference committee between the House and Senate to deal with the differences; that is where the discussions will get testy.

Presently Janet Yellen is testifying at the Congressional Joint Economic Committee. In her prepared text she repeated that a series of gradual rate increases are in order. She said GDP is picking up despite this year's heavy hurricane season and that the labor market is strong. For the longer term, she warned that weakness in productivity and slowing expansion in the labor market will hold down economic growth. She warned that asset valuations are “high by historical standards” but that risks to financial stability are still moderate. On inflation, she repeated that the core has been surprisingly subdued this year, which likely reflects one-time factors (such as the drop-in cell phone service fees), though she did concede that it could also reflect persistent factors (such as the aging population). She also noted that wage growth has remained “relatively modest.”

I am sure you are tired of me harping on the 10yr note, and even with this increase, we are still in our very tight range between 2.32% and 2.40% that we have seen now for several months. These spikes always cause concerns, but the mortgage markets are still stable, as these bumps can cause some stomachs to turn, but stay focus.