Published Date 8/30/2017
Conventional and Government (FHA and VA) lenders set their rates based on the pricing of Mortgage-Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up.
Mortgage rates are moving sideways to slightly higher so far today. The MBS market improved by +10 bps yesterday. This probably wasn't enough to improve mortgage rates or fees. The market experienced low volatility yesterday.
Jobs: The August ADP Private Payrolls surprised to the upside with a very strong 237K vs est of 180K to 185K. Plus July was revised upward significantly from 178K to 201K. Internally, we see a significant pickup in payroll taxes collected as well signaling a strong August jobs report on Friday. However, it's not about the number of jobs on Friday; it's about wages.
Housing: Weekly Mortgage Applications dropped by -2.3% from the prior week. Purchases led the way with a -3.0% drop. Refinances fell by -2.0%.
GDP: The 2nd QTR Gross Domestic Product was revised upward from the originally released rate of growth of 2.6% to 3.0%. The market was expecting a revision to 2.8%, and this number will be revised yet again. This is a solid reading, generally bonds perform very poorly with growth rates with a three handle. Consumer Spending was revised upward and is now a robust 3.3%.
Geopolitical: After the bond market started to calm down yesterday over the fear of escalation with NK, this morning President Trump tweeted "The U.S. has been talking to North Korea, and paying them extortion money, for 25 years. Talking is not the answer!". While he is correct, it does put more fear back into the bond market.
He is also scheduled to speak about Tax Reform today, and the markets will be paying close attention.
Japan (number 3): Their Unemployment Rate remained at 2.8% but household spending dropped by -0.2% vs est of +0.7%.
Germany (number 4): CPI YOY hit 1.8% which matched estimates. Eurozone: Their Economic Sentiment Indicator hit 111.9 vs est of 111.3.
We had some excellent economic numbers this morning, yet mortgage rates are staying relatively flat. Fears of North Korea and the flooding in Texas is helping to keep a lid on mortgage rates for now. Mortgage rate volatility continues to be relatively low.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.