Mortgage Rates Still Low with the Bump Today

Mortgage rates were technically higher today versus yesterday, but unless you have been following day-to-day movements under a microscope, you probably would not mind as we are still seeing the best rates since the end of November 2016 after the election. The saga continues as the stock indexes continue with the many good days than mishaps.  With all the positive news that was reported this morning, even with the profits not showing as much as hoped, the stock market has been roaring with no signs of any pullback and overdue for a correction of at least 10%. There are increasing numbers of money managers, analysts and economists that are expecting a reversal, it just is not happening.

Why do we care? Because unless the stock indexes begin to soften it removes the potential for lower rates. When (if) the stock market breaks money will increasingly flow to safe havens like US treasuries lowering interest rates. Gold, another haven place to park money as well as treasury yields have benefited recently as the concerns continue to increase. Gold up 17% this year has beaten the stock indexes and interest rates (10yr note) since mid-March has fallen declined 48BPS a decline of 18%. Mortgage rates in that same period has come down almost as much the same. The lack of inflation also supporting fixed income investments, allowing hedgers a luxury to hedge against the possible equity market decline without fearing inflation that is poison for fixed income investments.

The improvement yesterday in interest rates driven by the other support for interest rates, geo-political fears (North Korea), dropped the bellwether 10yr note, the driver for mortgage rates to its lowest level this year and going back to the November elections. This level is a rock-hard resistance and will not be easily broached. This is an important level that needs to be considered for those expecting rates to decline further.

Friday comes the August employment report – and is the next hurdle to be concerned with. However, before that, we get July personal income and spending. Within the data, the PCE (personal consumption expenditures), Janet Yellen’s favorite data on inflation. The estimate for PCE is an increase of 0.1% from June’s flat reading; yr/yr +1.4%. July personal income expected +0.4% and spending +0.4%. June data was flat with no increases in either.

We also get July pending home sales from NAR expected +0.4% after increasing 1.5% in June. A pending sale is one in which a contract was signed, but not yet closed. It usually takes four to six weeks to close a contracted sale. Sales data recently has been soft for both new and existing home sales vs what markets were expecting.

In summary, with the news on Monday that N Korea fired another missile, this time over Japan, bond markets ran for cover and pushed below a key technical pivot point in the 10yr yield.  Since then we have drifted slightly higher off the lows and almost back to where we were on Monday prior to N Korea news.  With month end bond buying it is difficult to tell where the momentum lies.  That said, we are still at this year's lows so I am recommending locking in at these rates.