Rates Cool As Summer Heats Up

It seems that when the nation’s economy is ready for a breakout the Eurozone economy stands up and spoils the party.

The June report released the first week of July recorded 288,000 new non-farm payroll jobs, which blew away consensus numbers of 218,000. The unemployment rate fell to 6.1 percent.

The May payroll numbers were revised up from plus 217,000 jobs. April’s employment numbers were also revised from up from 282,000 jobs to 304,000. Total employment gains those months were, therefore, 29,000 higher than the Bureau of Labor Statistics previously reported. Job growth averaged 272,000 for the last three months.

In more normal times, payroll numbers this strong would have driven the yields on bonds and mortgages much higher. For a few days, the rates on mortgages did go higher. They spiked to around 2.6 percent.

Days later, the Federal Reserve Bank released its much anticipated minutes. The Fed committed to the end of its bond-buying program around October of this year. At the same time, the Fed reiterated its dovish stance on rates and committed to keep interest rates low for the foreseeable future.

There were problems with Portuguese banks and weaker than expected Chinese export data. These problems compounded economic concerns and erased the enthusiasm from the jobs data.

The rates on the 10-Year Treasury notes, instead of testing a new high of 2.63 percent on July 3 (after the jobs report), actually tested lower resistance levels a week later. The yield fell to 2.53 percent on July 10. If there is more negative news on the domestic or international economies, the resistance level may be broken. The 52-week low is 2.42 percent, set on June 28.

The direction of rates for the balance of the summer will be determined in the last weeks of July. It will be interesting to see where rates end up by August.

Houses continue to be in strong demand in the Washington metropolitan area. Coupled with attractive mortgage rates, it continues to be an excellent time to buy a home.

Bill Starrels lives in Georgetown, where he works as a mortgage banker. Bill can be reached at 703-625-7355 or at bill.starrels@gmail.com (NMLS#485021).

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