Nick Siebert September 30, 2015
Mortgage rates fell appreciably on Tuesday, marking the second
straight day of improvements, and as a result current 30-year mortgage rates
are now hovering at 4-month lows. The stock market fell yesterday, and
investors flocked into ultra-safe haven assets, such as U.S. government
securities. Pricing on mortgage bonds, such as mortgage-backed securities (MBS)
increased and as a consequence a number of lenders released improved rate
sheets during mid-day. The bottom line is, that current mortgage rates are now
close to such low levels, that we haven’t seen since May 2015.
On Tuesday, the yield on the benchmark 10-year treasury note
fell by 5 basis points and this type of government bond finished the trading
session at 2.05%. The longer-term 30-year treasury yield declined as well,
coming out at 2.85% versus 2.87% that it had a day earlier.
This morning MBS is in the red, while stocks are rallying and as
a result mortgage interest rates are slightly higher, as of this writing.
At its last policy meeting in September, the Federal Reserve
decided to hold off on increasing short-term interest rates.
The decision, to leave interest rates unchanged, has been causing some swings
in the financial markets, as market participants are unsure about the direction
of the U.S. central bank’s monetary policy. Lately investor sentiment is down,
equities are falling and there’s low confidence in global growth. Overall,
recent market trends and economic headlines have been supportive for low
mortgage rates, but the upcoming Non-Farm Payrolls report, which is the most
influential domestic economic report this week, could potentially break this
This mid-week two pieces of economic data saw the light of day,
including the ADP National Employment Report for September and the upcoming
Chicago PMI. According to fresh jobs data from payroll processor ADP, U.S.
private payrolls rose by 200,000 jobs in September. As far as job growth is
concerned, the current figure marks a three-month high. This is a strong
report, which exceeds the projected increase of 190,000 jobs. On the other
hand, August’s job numbers were revised down to 186,000 from the previously
Today’s other notable domestic economic report is the latest
Chicago Business Barometer, also known as the Chicago PMI, which shows regional
manufacturing activity in the Chicago area. According to a fresh report
released by the Institute for Supply Management, business activity in the
Midwest contracted this month, as a result of declines in production and new
orders. This month’s Chicago PMI came in at 48.7, falling sharply from 54.4
last month, and it’s the fifth time this year that the Chicago region’s
manufactury activity index signals contraction. The consensus expectation was
for a reading of 53.3 for September’s Chicago PMI. In normal circumstances, you
could expect that such a weak domestic economic data would have at least some
kind of impact on the bond market, and indirectly on mortgage rates, however,
bonds are seemingly driven by stock market movements and overseas economic
headlines these days.
With regards to this week’s Fedspeaks, yesterday we reported
that several U.S. central bank officials, including New York Fed President William
Dudley and San Francisco Fed President John Williams, chimed in with their opinions about the
central bank’s monetary policy. In an interview with Nikkei on Tuesday,
Cleveland Fed President Lorett Mester said, that the U.S. central bank’s
decision to hold off on increasing rates at its September policy meeting “was
really a decision about risk management”. On the other hand, she reiterated her
views, that she believes the economy is strong enough for an initial rate hike.
Another top Fed policymaker, Chicago Fed President Charles
Evans, who is one of the dovish members of the U.S. central bank said in
remarks prepared for a speech at Marquette University on Monday, that the Fed
should leave interest rates near-zero until some time next year, citing risks
that prematurely hiking rates could come with “substantial costs”. According to
Evans, the Fed should take an “extra patient approach” when it comes to
tightening its monetary policy for the first time since 2006, due to risks that
inflation may not reach the Fed’s target levels and this could complicate the
U.S. central bank’s monetary policy plans.
In other news, financial firm Zillow reported earlier this week,
that the average interest rate on the benchmark 30-year fixed mortgage remained
unchanged at 3.73% on Zillow Mortgages during the wraparound week ended on
Tuesday. The company’s findings also showed, that the shorter-term, 15-year
fixed mortgage averaged a rate of 2.92%, while the 5/1 adujstable-rate mortgage
(ARM) came out at 2.74% during the said period.
A quick look at current average mortgage rates by state, shows
that in California, the 30-year FRM is now hovering at 3.71%, a 1 basis point drop
compared to data in the prior week. The biggest weekly drop in rates took place
in Colorado and Massachusetts states, where the current average interest rate
on the 30-year fixed mortgage is coming out at 3.71%. Zillow’s data also
revealed that the lowest interests rate on the 30-year FRM was measured in
Texas during the wraparound week, with the average rate coming out at 3.70%. On
the other hand, the highest average rate for this type of long-term,
conventional loan was measured in New York state (3.78%).