Mortgage Rate Update September 3, 2015

Mortgage rates are basically unchanged for the week.  US interest are effectively being tugged higher by US domestic economic conditions while international storylines attempt to pull them lower.

The financial markets are eagerly awaiting tomorrow’s all-important jobs report.  Expectations are for ~+220,000 new jobs to be created.  Typically, if new job creations exceed expectations then we’d expect mortgage rates to worsen and vice versa.  Tomorrow we may see interest rates react to a lesser publicized indicator in the jobs report.  Average wage growth is of significant interest to the financial markets given the Fed’s position.

As I’ve previously written on ‘rate update’ if the Fed only monitored job creation chances are they would have hiked short-term interest rates by now since the labor market has been fairly strong.  However, the Fed also monitors inflationary stability and price pressure has been weak.  Analysts are watching to see is average hourly earnings are on the rise.  If so, that could signal wage-based inflation on the horizon which would likely prompt the Fed to raise rates.  If wages don’t grow then the Fed is more likely to hold out until a future meeting.

US interest rates are caught in a tug of war
US interest rates are caught in a tug of war

As analysts try and predict the Fed’s next move it is clear they are in very difficult space.  Domestically the US economy is solid and is probably ready for a modest hike.  However, international weakness may keep the Fed on hold.

Earlier today European Central Bank (ECB) president Mario Draghi announced that the ECB was prepared to further stimulate the EU economy with additional quantitative easing measures.  The EU’s largest economy is Germany which is heavily reliant on trade with China.  As we know China’s near-term economic outlook is less than strong.

The yield on the German 10-year government bund is .79%.  The yield on the US 10-year treasury note is 2.17%.  As long as rates for German debt remains low it will make it hard for US rates to increase too much.

Predicting tomorrow’s all-important jobs report is always difficult.  The safe play is to lock given that US interest rates remain attractive on a historical scale.  That said, I think tomorrow’s jobs report has a strong likelihood of coming in soft so I will recommend a floating bias.

Current Outlook: floating bias

The views and opinions expressed in this site are those of the author(s) and do not necessarily reflect the official policy or position of Cherry Creek Mortgage Co., Inc. This is for informational purposes only. This is not a commitment to lend.