June 27th 2017 Mortgage Rate Summary

Consumer confidence shows strength in June


Today’s Mortgage Rate Summary

How Rates Move:

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.

Rates Currently Trending: Higher

Mortgage rates are moving higher so far today.  The MBS market imrpoved by +11 bps yesterday. This wasn’t enough to imrpove mortgage rates or fees.   The market experienced low volatility yesterday.

Today’s Rate Forecast: Higher

Housing: The April Case-Shiller Home Price Index showed a price increase of 5.7% vs est of 5.9%. This is a 20 metro city reading and not a large enough sample size. The Existing Home Sales report and FHFA Price Index are better indicators.

Manufacturing: The Richmond Fed Manufacturing Index was much stronger than expected for this regional area, coming in at almost double the market expectations (7 vs est of 4).

Consumer Confidence: The June reading is at a very high level and stronger than market expectations (118.9 vs est of 116.7) and a nice improvement over May’s 117.6 level. Consumers’ assessment of the labor market improved. Those stating jobs are “plentiful” rose from 30.0 percent to 32.8 percent, while those claiming jobs are “hard to get” decreased slightly from 18.3 percent to 18.0 percent.

Fed: Fed Chair Janet Yellen will speak from London on the global economy at 1:00 OM EDT. We will also hear from Patrick Harker and Neel Kashkari.

ECB: Speaking to a conference in Portugal, ECB President Mario Draghi said the central bank could adjust its policy tools of sub-zero interest rates and massive bond purchases as economic prospects improve in Europe.

Great Brittan: Bank of England Governor Mark Carney said he wants to boost (increase) the levels of capital banks are required to have as a precautionary measure ahead of any systematic risks due to the Brexit.

IMF: The International Monetary Fund downgraded their forecasts for growth in the U.S., but their forecasts are never close to reality (one way or the other).

Today’s Potential Rate Volatility: Average

It’s a big day for several Central Banks as we hear from the ECB, BofE, Federal Reserve and the IMF. So far, comments from ECB President Draghi have bond markets thinking that they could be prepping the market for some rate tightening this year and are pressuring MBS prices. We also had very a very strong Consumer Confidence report this morning which is adding pressure on mortgage rates. Today, we are likely to see MBS pull back -9 to -29 BPS (higher rates) from yesterday’s close which means that we will trade in the same channel, just at the bottom instead of the upper middle part like we did yesterday. Yellen is the wild card, if she takes the time to double-down on her message from the last Fed meeting that another rate hike is coming regardless of inflation levels (i.e. Fed on preset course), then MBS may pull back below our trading channel (higher mortgage rates).

Bottom Line:

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.

Source: TBWS

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