Mortgage Rate Update January 5, 2017

Happy New Year!  I hope you had a safe and joyous holiday season and that 2017 is off to a great start!

Mortgage rates are off to a good start.  As we know mortgage rates increased by .50%-1.00% following the election on expectations that the new administration would engage in aggressive fiscal expansion (increased spending and reduced tax revenue).

A larger government budget deficit requires that the US Treasury issue more debt.  The greater supply of debt drives prices lower on existing bonds which consequently drives yields higher.  Hence, mortgage rates rise as well.

However, mortgage rates have improved modestly this week for a couple reasons.

First, the financial markets are finally scaling down expectations for the new president’s fiscal expansion.  There are too many fiscal conservatives in Congress to allow for such a large increase in the deficit.

Second, tomorrow we get the all-important jobs report and expectations are that the results will be weaker than expected.  Bad news for the economy is often good news for interest rates.

From a technical perspective mortgage rates have momentum heading in a positive direction.  That said, we have to cautious because the longer-term trend is working against us.  I am going to recommend that we take our gains off the table and lock in ahead of tomorrow’s jobs report.

Current Outlook: locking