Mortgage Rates Continue to Decrease....

Mortgage rates moved lower today, even though when I say such, it really means that the fees associated with the rate quoted can be less if the rate itself did not change from the day before. This gradual downtrend brought them to their best levels of the year on Tuesday.  Yesterday saw a modest bounce and today leaves us somewhere in between. 

With the last day of the month before the big weekend, this morning’s report was a little bit short.  The most disappointing news this morning was July pending home sales from NAR. Pending sales, contracts signed but not closed yet, were expected to increase 0.4% from June, as reported it disappointed, down 0.8%. The fourth decline in the last five months. It does not look good for August existing home sales that will hit in a few weeks (Sept 20th). Existing home sales have declined three of the past four months. Not interest rates holding sales back, as you know NAR and other housing trackers continue to report the lack of homes on the markets across the country and to some extent tighter credit underwriting. Millennials (first time buyers) cannot save enough for a down payment and incomes are low compared to historical data for those under 30 years old. Housing has always led the economy on growth since the end of WW II, not this time after the rupture of housing markets in 2000s.  The regional breakdown shows the South, which is the largest housing region, falling 1.7% in the month with the West, at plus 0.6%, the only one in positive ground. And coming in the months ahead even weaker sales due to the results of Harvey.

Tomorrow the monthly Elephant, employment data. Usually presents some wild surprises compared to consensus estimates - sometimes positive, other times shocking misses. It is the wildest reactionary report each month. Tomorrow is likely to present the same scenario. Yesterday ADP reported private jobs increased 237K with forecasts at 182K.  ADP data is not a completely reliable indicator for the BLS report that will hit tomorrow morning. The forecasts for tomorrow - non-farm jobs +180K, private jobs +177K. The unemployment rate is thought to be unchanged at 4.3%. Other key stats, the labor participation rate and U-6 (people working at jobs that are less than they want and not matching their qualifications. But of all of the details the main focus is going to be the average hourly earnings in August, expected up 0.2% after increasing 0.3% in July.

Traditionally, tomorrow's big jobs report is a big source of volatility for rates.  That's less certain to be the case tomorrow, given that markets are well availed of labor market strength.  Volatility could also come from the fact that it's the first day of a new month, which creates extra trading activity as money managers reshuffle their holdings after having been forced to maintain a certain balance of bonds through the end of the previous month.

Beside the August employment report tomorrow there are other key data points, been awhile since we have had employment with this much more key data. August auto and truck sales (expected to have slipped because of Harvey, no sales in the Houston area for over a week).

In summary, I continue to see very little benefit in floating.   My clients and I are choosing to go ahead and lock in now.  Bonds are benefiting from some month end trading today, plus we get the employment report tomorrow.  Take advantage of the recent rally and lock in.