Mortgage Rate Update September 25, 2017

We are officially in Autumn as of Friday when the Earth’s equator passed through the center of the Sun’s disk.  On an equinox the duration of the day and night are approximately equal all over the globe.  Although the season will be turning to fall I don’t anticipate mortgage rates to fall drastically anytime soon.

Although this leaf is soon to fall I don’t expect mortgage rates to follow suit.

In case you missed it the Fed did follow through last week and announce plans to unwind their ~$4.5 trillion balance sheet.  According to the announcement the Fed is expected to reduce the size of their balance sheet on a monthly basis at a pace which will take approximately 7 years to completely liquidate (although they are not likely take the program that far).  This pace is mostly in line with expectations and therefore mortgage rates did not react in a significant manner to the speech.

As I have written repeatedly I believe mortgage rates are far more likely to increase from these levels than they are to decrease given the aforementioned information.

Presently, geopolitical events are preventing US mortgage rates from increasing.  Preliminary German election results show established parties, including Chancellor Angela Merkel’s, receiving the lowest share of the overall vote in the post-World War II era.  Not surprisingly extreme-right populist parties are faring better than expected.

US-North Korean tensions continue to encourage a “flight-to-safety” trade which US interest rates benefit from.

This week the economic calendar is full of fresh housing data.  I will shift to a neutral position in the near-term but favor a locking bias long-term.

Current Outlook: neutral

Mortgage Rate Update September 18, 2017

This week in 1973 Billie Jean King defeated former number 1 ranked Bobby Riggs in a tennis match which was publicized as the “Battle of the Sexes”.  Over 50 million television viewers watched the event.  The prior year King was the first woman to be named “Sportsperson of the Year” by Sports Illustrated.

This week the first woman to chair the Federal Reserve will deliver a very important speech following a regularly scheduled monetary policy meeting.  As I’ve written many times the Fed is about to embark on an unwinding of the monetary stimulus they injected into the economy in the wake of the financial crisis.

The Fed is currently in uncharted territory and analysts disagree over the impact of such a move.  Mechanically the Fed will simply allow bonds on their balance sheet to mature without replacing them.

Even without expanding their balance sheet the Fed has remained the highest volume buyer since quantitative easing ended.  The concern is that when the Fed withdraws their level of demand from the market interest rates will have to increase in order to attract buyers.  The degree by which interest rates rise is a matter of debate.

What all parties do agree on is that mortgage rates are very unlikely to improve from these levels as a result of this development.

We shifted to a locking bias two weeks ago and that move has paid off.  I will remain in a locking stance.

Current Outlook: locking

Mortgage Rate Update May 8, 2017

Last week we switched to a locking bias and indeed mortgage rates did worsen very modestly.  Rates were pressured higher on Wednesday last week after the Fed labeled weak 1st quarter economic activity as “transitory”.

Friday’s all-important jobs report showed that 194,000 new jobs were created during April and the US unemployment rate fell to a decade low of 4.4%.  Good news for the economy tends to be bad news for mortgage rates.

As you’ve probably heard France elected 38 year old Emmanuel Macron to be their new president yesterday.  He defeated far right candidate Marine Le Pen.  The financial markets are shrugging their shoulders today as it was widely expected.

Congratulations to the people of France who elected the youngest president in their history. The election has not had an impact on mortgage rates thus far.

The Wall Street Journal ran THIS PIECE over the weekend in which they highlight the fact that interest rates are vulnerable to a sharp increase if the Trump administration tax cut plan converges with the Fed’s unwinding of their balance sheet.  Should President Trump get his tax cut plan through congress the federal deficit would likely grow beyond the current forecast of $1 trillion by 2023.  This coupled with the Fed increasing the supply of bonds on the open market would almost surely drive long-term yields higher.  This is a threat we will have to monitor throughout the summer.

In the meantime mortgage rates remain at very attractive levels.  This week’s economic calendar is fairly light.  The highlights come on Thursday & Friday when we get the Producer Price Index and Consumer Price Index.

The technical outlook for interest rates looks favorable so I am going to recommend a floating bias this week.

Current Outlook: locking bias

Mortgage Rate Update March 20, 2017

Housekeeping: As you may have noticed the past two weeks ‘rate update’ is shifting to once weekly distribution (each Monday).  I am working on a new supplemental Thursday format designed to get you ready for the weekend that I will be rolling out after spring break.

HAPPY 1ST DAY OF SPRING!  It’s almost time to bust out your shorts from the back of your closet.

Last week’s advice to “float” proved to be a good decision as mortgage rates did improve following the Fed’s decision to hike rates on Wednesday.

The Fed’s +.25% rate hike announced on Wednesday was not a surprise to the financial markets.  Interest rates behaved just like they did the last two times the Fed hiked rates (Dec. 2015 & Dec. 2016).  Prior to the announcement yields rose then following the announcement yields fell.  The chart below shows the yield on the US 10-year treasury note going from 2.33% up to 2.63% from late February until last Wednesday.  Since then yields have retreated back to ~2.49%.

In her post-meeting comments Fed Chairwoman Janet Yellen reiterated the committee’s confidence in the economy and said they would continue to “gradually” hike short-term interest rates (two more hikes expected in 2017).  Currently the financial markets are pricing in a ~58% probability that the next Fed rate hike will come in June.

This week’s economic calendar is light.  The highlights include the FHFA housing price index (Wed.), existing home sales (Wed.), and new home sales (Thurs.).

I will be keeping a close eye on the stock market and technical trading patterns.  After floating last week and seeing some gains I am leaning towards a locking bias this week.

Current Outlook: locking bias

Mortgage Rate Update February 27, 2017

Shifting to a ‘floating bias’ on Thursday of last week has proved timely as yields have improved.  Speaking of floating today is National Polar Bear Day.  Apparently you can bake “cubcakes” if you really want celebrate.

As far as mortgage rates are concerned we are no longer floating.

Mortgage rates had a great ride last week but momentum appears to be shifting.  As the French presidential election draws nearer (scheduled to complete May 7, 2017) I expect that polling will be more and more significant for US interest rates.  Why?

Anti-European Union candidate Marine Le Pen is considered to be an anti-status quo candidate.  The financial markets like certainty.  Therefore, when Le Pen’s polling appears stronger US mortgage rates will improve on perceived uncertainty and vice versa.  Polling released over the weekend showed her down which is bad news for mortgage rates.

President Trump is scheduled to speak in front of a joint session of congress tomorrow afternoon.  Analysts are expecting that he will roll out a major policy initiative.  Depending on what that policy is it could impact mortgage rates.  Specifically, if he announces a major infrastructure package I would expect mortgage rates to worsen in reaction.

This week’s economic calendar is fairly busy with highlights on Tuesday (GPD) and Wednesday (Personal income & inflation).  Given that the technical trading picture has shifted I am going to recommend locking in now.

Current Outlook: locking

Mortgage Rate Update January 23, 2017

Mortgage rates are mostly unchanged from last Thursday’s ‘rate update’.

Will President Trump’s policies help or hurt our economy?  This is one of the primary questions the financial markets are dealing with right now.

On one hand a large infrastructure investment would provide fiscal stimulus that would certainly create growth and possibly pressure mortgage rates higher.

What economic policies will the new administration draft up?

However, on the other hand an anti-free trade platform is likely to hurt economic growth which could help mortgage rates.  I expect the markets will continue to see-saw until additional details are presented.

The economic calendar is fairly light this week.  The highlights include existing home sales (Tuesday), new home sales (Thursday), and Gross Domestic Product (Friday).

From a technical perspective mortgage rates are improving gradually compared to Friday so I will recommend floating.

Current Outlook: floating

Mortgage Rate Update January 19, 2017

Well, after a nice 5-week run mortgage rates ticked higher yesterday giving away half the improvements they gained on the way down.

The culprit?  Fed Chairwoman Janet Yellen delivered a speech yesterday in which she stated that Fed officials expect to raise short-term interest rates “a few times a year” through 2019.  This was more aggressive than her previous public comments and leads the markets to believe that inflation expectations may be higher than anticipated.

Speaking of inflation expectations, the Wall Street Journal ran THIS STORY yesterday which confirms just that.  The spread between US treasuries and inflation protected treasuries has been widening signaling that investors believe inflation will be higher in the future than it presently is.  Inflation is the primary driver of mortgage rates.

The jobs picture continues to be strong both nationally and locally.  This is bad news for mortgage rates but good news for housing demand.  The number of Americans filing for initial jobless claims fell last week to one of the lowest levels on record.

Furthermore, it was reported that Oregon’s unemployment rate fell to 4.6% which is down nearly 1% from last summer.

All in all the momentum has shifted against us.  Fortunately we remain within a technical range of trading so we could see rates improve off these levels.  For now though I will shift to a locking bias.

Current Outlook: locking bias

Mortgage Rate Update December 5, 2016

Mortgage rates are mostly unchanged from last week.

US stocks are starting the week off higher.  Typically, when stocks rally mortgage rates suffer.  Interest rates are modestly worse as compared to Friday but overall pretty even.

This week’s economic calendar is relatively light.  Therefore, I expect technical trading patterns to play an important role.  Currently the US 10-year treasury note is yielding 2.39% which is just above an important technical level of 2.385%.

12-5-16-portland-mortgage-broker-us-10yr

If the yield can end the day at or below 2.385% I could see mortgage rates improving by .125%-.25% later this week.  If not, it would add strength to this technical level and I will shift to a locking bias.

That said, the next Fed meeting is scheduled for next Tuesday-Wednesday (13th-14th).  The markets are currently predicting a ~95% probability that the Fed will hike short-term interest rates.  As a reminder, the Fed does not directly set mortgage rates.  And in fact, a hike could actually help mortgage rates improve because they are anti-inflationary.

Current Outlook: floating

Mortgage Rate Update April 4, 2016

Mortgage rates improved modestly last week and remain very near multi-month lows.

Friday’s all-important jobs report was in line with market expectations.  215,000 new jobs were created during the month of March and the unemployment rate crept up to 5.0% as more citizens entered the workforce.  Mortgage rates held steady on the release.

In case you missed it the S&P Case-Shiller Home Price Index was released last week for the month of January.  For a second straight month Portland led the nation in year-over-year home price appreciation (11.8%).  Good news if you are a seller and not as much for prospective buyers.

This week’s economic calendar is very light.  There are a few Fed officials scheduled to speak throughout the week and minutes from the most recent monetary policy meeting are also scheduled for release.  Barring any surprises with those events we’d expect mortgage rates to react to technical trading patterns and global influences.

From a technical perspective mortgage rates look like they could make a run for another .125% improvement.  The US 10-year treasury yield is currently trading at 1.77% and recent lows occurred back in mid-February at 1.55%.

04-04-10yr yield-portland or mortgage broker

In comparison, Germany’s 10-year bund is currently trading at .14% and Japan’s equivalent is trading at -.08%.  That’s right, investors in Japan’s 10-year government bond  are actually paying .08% to invest.  As long as these rates remain low the US should experience low mortgage rates.

Current Outlook: floating

Rate Update July 27, 2009

Mortgage rates are unchanged from Friday.

This week’s schedule for US Treasury fixed-income securities auction:
The US Treasury is scheduled to sell a high volume of T-bills, notes, and bonds this week. On Monday, $6 billion in Treasury-inflation-protected 19.5-year notes will be auctioned; along with $32 billion in 13-week bills and $31 billion in 26-week bills. On Tuesday, $27 billion in 52-week bills will be auctioned, along with a heart-stopping $42 billion in two-year notes. On Wednesday, the Treasury will auction $39 billion in five-year notes. And on Thursday, $28 billion in seven-year notes will be auctioned. In total $205 billion in securities will be sold.

Here is a link to read the blog post on the new mortgage rules which could delay real estate closings.

Current Outlook: bias towards locking on short-term transactions with additional supply of treasury bills.