Today, the first business day of 2016, five events have conspired to bring chaos to interest-rate assumptions: China’s manufacturing PMI fell for the tenth-straight month, to 48.2; authorities shut China’s stock markets before the scheduled close after a 7 percent crash; conflict between Saudi Arabia and Iran has escalated; and the US ISM (Institute for Supply Management) manufacturing index unexpectedly tanked to 48.2.
Confession and nomenclature … first, my perpetual apology for seizing on negatives. Bad news takes rates down, and that’s good for mortgages and real estate — so long as the news is anti-inflationary and not too bad for the economy.
“PMI” translates as “purchasing managers’ index,” surveys of them an old and reliable indicator, since purchasing managers are always looking ahead. PMI data is fresh, surveys taken late in the preceding month and released on the first business day of the next: today! In the US, the Purchasing Managers’ Association changed its name to Institute for Supply Management (ISM), but it’s the same stuff.
Context: media pay way too much attention to stocks, except when they matter. China has tried for more than a year to “reform” its economy away from crony statism toward markets, and today’s wild CSI300 reaction to bad economic news is more evidence that reform is going nowhere. Growth is also faltering, and every state effort to goose it will be based on pushing exports, harmful to everyone else. Hence contagion to export-competitor stock markets, Japan, Europe and US, all in bad days.
[graphiq id=”j8KPMfiKv9H” title=”30-Year Fixed Rate Mortgage Rates for the Past 6 Months” width=”600″ height=”400″ url=”https://w.graphiq.com/w/j8KPMfiKv9H” link=”http://mortgage-lenders.credio.com” link_text=”30-Year Fixed Rate Mortgage Rates for the Past 6 Months | Credio”]
Then the part we care about: interest rates. German 10-year bonds fell to 0.565 percent (buyer demand aided by Saudi-Iran trouble), which makes our 2.25 percent 10-year look rich.
US mortgage rates follow the 10-year. Mortgage rates are impossibly annoying to track because my industry colleagues avoid confessing that we all have the same deal, usually 1.80 percent above the 10-year Treasury note. Ask us what we have, and we give you a constantly shifting smokescreen of rates, fees and closing costs.
Freddie Mac’s weekly survey gets the biggest ink when released on Thursdays, but the survey is then two or more days old. Freddie won’t “discover” today’s drop until Thursday. Last week it found “4.01 percent with .6 percent fees,” and today you might find 4.00 percent with no fee.
Today’s news might have produced a deeper drop, but the gorilla of all financial news lies waiting on Friday morning: jobs and wages for December. If that’s weak, then assumptions that the Fed will hike again will also weaken, and despite all the rates-up, rates-up headlines, mortgages might drop back into the threes.
Thus bad news is good. Happy new year.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
