The recent tragic loss of another Malaysian Airlines plane reminded us that our mortgage rates, and interest rates in general, can be impacted by many factors. As we always seem to learn, it is the unexpected events, usually overseas, that seem to move the markets more than the news coming out of the United States. Treasury securities remain the investment of choice when confusion and disarray mount, and agency mortgage-backed securities nearly always go along for the ride. And while the safe-haven bid can be fleeting, it can also be ferocious. We need to respect the reflexive nature of the markets.
Speaking of overseas we also found out that the year-over-year rate of real GDP growth in China edged up to 7.5 percent in Q2 from 7.4 percent in Q1 – much higher than that of the United States. Growth in China, and other countries, can move our rates higher as the demand for credit increases.
JMAC’s veteran brokers know that the scheduled news releases here, however, were much less dramatic. Retail Sales, home sales, consumer & producer price indices, housing starts, and so on have all been relatively benign in recent weeks.
What was somewhat unexpected was Fed Chair Janet Yellen’s semi-annual Humphrey-Hawkins testimony two weeks ago. Ms. Yellen spent the majority of her H-H testimony and Q&A painting a rather cautious view of the US economy’s underlying momentum. The glass half-full approach was evident as almost every positive remark was tempered with a “But…”. For example, the jobless rate has fallen sharply BUT wage growth remains anemic.
Yes, all kinds of experts think rates are going to move higher over time (when they’re this low they have little room to go lower, right?). But as our brokers know, aside from surprises overseas, don’t expect the news here in the United States to push rates much higher than where they are now. Recent numbers indicate that the economy here is just not that strong.