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Mortgage Rates Unchanged

The presidential election stole all the headlines this week, but it had only a one-day effect on U.S. Treasury securities. A post-election relief rally on Wall Street drew funds from bonds and put them to work in the equity markets, but the situation was only temporary. Now it’s back to business as usual, with oil prices and economic news the main catalysts for Treasury market movement. When oil prices fell near $48 a barrel, Treasury prices slid and their yields, which move in the opposite direction of prices, climbed. This is because traders believe high oil prices will slow the economy, while low prices would have the opposite effect. News was mixed, with manufacturing showing weakness while the service sector remained healthy. When the dust settled, Treasury yields held close to last week’s levels. This allowed mortgage lenders who base their rates on yields to leave them unchanged. The biggest market mover was the ISM report on October manufacturing conditions, which came in well below estimates. The 56.8 reading, however, showed the seventeenth straight month of expansion. A strong ISM report on the service sector outpaced expectations, and countered the manufacturing index. Personal income and outlays proved somewhat encouraging for the economy, with spending in September rising 0.6 percent. Income edged up to 0.2 percent. But factory orders fell 0.4 percent, and third-quarter productivity was weaker than expected. Worker output slowed to an annualized increase of 1.9 percent—well below the revised 3.9 percent reading for the previous quarter. Jobless claims were down across the board. First-time claims fell by 19,000 to 351,000, while the closely watched four-week average slid to 342,000. Continued claims—those collecting benefits for more than one week—dipped to 2.8 million.

Low rates boosted mortgage activity for the week ended October 29, according to the Mortgage Bankers Association. Refinancing increased 3.1 percent, accounting for 46 percent of mortgage activity, but purchases soared, rising 12.6 percent. The 30-year fixed-rate mortgage (based on zero discount points) remains right at 5.5 percent, while the 15-year fixed-rate mortgage is holding at 4.875 percent. The introductory rate on the volatile one-year adjustable-rate edged down to 3.125 percent.

Upcoming economic news is on the slim side, but the November 10 meeting of the Federal Open Market Committee will fill the void. Although an increase of 25 basis points is a done deal, the accompanying statement that could indicate the Fed’s intentions at the December meeting will be scrutinized. Some believe the Fed will pass on a December rate hike because it could stifle holiday shopping, while others think high oil prices are doing the work of the Fed. If the statement is non-committal and economic reports are on target, mortgage lenders will probably hold rates near current levels.