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James Brooks

Mortgage Rates Improve Expect Rates To Move Again In The Next Day 7-14-2015

Tuesday, July 14, 2015 - Article by: James Brooks - Polaris Home Funding Corp - Message

By James Brooks

The bond market is up 7/32 (2.40%), which should improve today's mortgage rates by approximately .250 of a discount point.

today's only economic data was June's Retail Sales report that showed consumer level sales fell 0.3% last month. Analysts were expecting to see an increase of .3% meaning consumers spent much less than many had thought. Furthermore, a secondary reading that excludes more volatile and pricey auto sales showed a similar variance. Because consumer spending makes up about 70% of the U.S. economy and bonds tend to thrive in weaker economic conditions, we can consider this data very good news for mortgage rates.

Tomorrow has three relevant pieces of economic data scheduled and will likely be the key day of the week. The first is June's Producer Price Index (PPI) from the Labor Department. It is a very important release because it measures inflationary pressures at the producer level of the economy. It is expected to show a 0.3% increase in the overall reading and a 0.1% increase in the core data reading. The core reading is the more important of the two because it excludes more volatile food and energy prices, revealing a more reliable inflation reading. The bond market should react favorably if we get weaker than expected readings, but a larger than expected rise in the core reading could send bond prices higher early tomorrow.

June's Industrial Production data is the second report of the day at 9:15 AM ET. This data measures output at U.S. factories, mines and utilities, giving us an indication of manufacturing sector strength. It is expected to show a 0.2% rise in production, indicating that the manufacturing sector strengthened slightly during the month. That would basically be bad news for bonds, however the PPI and later morning events will take center stage.

Late tomorrow morning, Fed Chair Janet Yellen will start her semi-annual update about the economy and monetary policy before Congress. She will speak to the House Financial Services Committee tomorrow and the Senate Banking Committee Thursday, each at 10:00am ET. Her testimony will be broadcast and watched very closely. Analysts and traders will be looking for the Fed's opinion on the status of the economy and their expectations of future growth, inflation and unemployment concerns that will lead to the Fed's first rate hike. These topics should create a great deal of volatility in the markets during the prepared testimony and the question and answer session that follows. If she indicates that inflation may become a point of concern or anything that hints at rapid economic growth, we can expect to see the bond market fall and mortgage rates rise.

We usually see the most movement in the markets and mortgage rates during the first day of this testimony. This is because the speaker's prepared words for both appearances are quite similar to each other, meaning that the second day of testimony rarely gives us anything we did not hear during the first day. The general exception is something asked or answered during the Q&A portion of the second day's appearance.

As if that was not enough for the day, tomorrow afternoon does bring us something that could influence the markets and possibly mortgage pricing. The Federal Reserve will release its Beige Book report at 2:00 PM ET. This report is named simply after the color of its cover, but it is considered to be important to the Fed when determining monetary policy during their FOMC meetings. It details economic activity and conditions by Fed region throughout the U.S. If there are any significant changes in conditions since the last update, we could see afternoon moves in the markets and mortgage rates. Signs of weakness should translate into bond strength and better mortgage rates.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Float if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now.

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