Rate Lock Advisory

Wednesday, July 30th

WEDNESDAY AFTERNOON UPDATE:
This week’s FOMC meeting has adjourned unsurprisingly with an announcement that key short-term interest rates were left unchanged for the fifth consecutive time. Market participants were widely expecting that to happen. The post-meeting statement indicated the Fed saw economic activity has “moderated” during the first half of the year, which was a change from the word “solid” that they used previously. Other relevant comments include that the employment sector remains solid, but inflation is somewhat elevated.

9/32

Bonds

30 yr - 4.35%

8

Dow

44,624

86

NASDAQ

21,184

Mortgage Rate Trend

Trailing 90 Days - National Average

  • 30 Year Fixed
  • 15 Year Fixed
  • 5/1 ARM

Indexes Affecting Rate Lock

Medium

Neutral

Misc Fed

Also as no surprise, Fed Governors Bowman and Waller both voted to make a rate cut at this meeting, leaving the vote count as 10 to hold steady on rates and 2 to lower them at this time. This was the first time two voting members of the FOMC dissented with the majority vote since 1999. However, it remains to be seen if that number will grow enough for the Fed to make a cut at September’s meeting. There is plenty of relevant economic data scheduled for release between now and the next meeting that certainly could alter their decision making process.

Low

Positive

None

The impact on the markets has been relatively minor. Stocks aren’t far from where they were when we posted this morning’s report. The Dow has slipped 8 points into negative ground while the Nasdaq is up 86 points. The bond market is still in negative territory, but has regained a portion of the earlier losses. It is currently down 9/32 (4.35%), which may be enough for some lenders to make an intraday improvement in rates of approximately .125 of a discount point. Many lenders may opt to wait and see what may transpire during Chairman Powell’s press conference and/or tomorrow’s economic news before reflecting that change.

Medium

Negative

ADP Employment

Earlier today a couple of stronger than expected economic reports fueled early selling in bonds. July’s ADP Employment report at 8:15 AM ET showed 104,000 new private-sector jobs were added to the economy, exceeding forecasts of 78,000. The higher number is a sign the employment sector was stronger than expected this month. The jury will be out on that debate until we get the governmental version Friday morning.

High

Unknown

Gross Domestic Product (GDP)

Secondly, the initial reading of the 2nd Quarter Gross Domestic Product (GDP) showed the economy grew at a 3.0% annual pace during the April through June months. This was noticeably stronger than the 2.5% that was expected and a huge rebound from the 0.5% contraction during the first three months of the year. The headline number is a clear sign the economy was stronger than thought last quarter despite tariff concerns.

High

Unknown

Personal Income and Outlays

Tomorrow has three economic reports set for release, all at 8:30 AM. The most important of the group is June’s Personal Income and Outlays report. Forecasts show a 0.2% rise in income and an increase of 0.4% in spending. Rising income means consumers have more money to spend, fueling economic growth. However, what makes this release so important to the markets are the Personal Consumption Expenditures (PCE) indexes in it. These are the Fed’s preferred inflation readings and draw plenty of attention. The overall PCE is expected to rise 0.3% for the month as is the more influential core PCE. On an annual basis, the overall is predicted to rise 0.2% from May’s 2.3% year-over-year pace while the core reading is expected to hold at May’s 2.7% rates. Good news for bonds and mortgage rates will be smaller than expected increases, particularly in the annual PCE readings.

Medium

Unknown

Employment Cost Index (Quarterly)

Next up is the 2nd Quarter Employment Cost Index (ECI) that tracks employer costs for wages and benefits. This release will give us a measurement of wage-inflation that makes long-term securities, such as mortgage bonds, less attractive to investors. A large increase in labor costs raises concerns that employers will need to pass them onto consumers in the pricing of their products and services. A smaller increase than the expected 0.8% would be helpful to mortgage pricing.

Medium

Unknown

Weekly Unemployment Claims (every Thursday)

Finally, the weekly unemployment update is expected to show 224,000 new claims for jobless benefits were filed, up from the previous week’s 217,000 initial filings. Rising claims are a sign of weakness in the employment sector, so good news for rates would be a larger number of claims.

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.