Category: Rate Update

Mortgage Rate Update January 9, 2017

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates are effectively unchanged from last week.

As I’ve written countless times on this feed there is a common misunderstanding about the relationship between the Federal Reserve and mortgage rates.  The Fed does not directly control mortgage rates.

The most recent Fed hike, which took place on December 16th, is yet another example.  Since December 16th the yield on the US 10-year treasury note has improved as have mortgage rates (feel free to knock on wood as you read this).

Why?  It’s important to remember that when the Fed hikes short-term interest rates it is with the intention of curbing inflationary pressure.  Since inflation eats away at the profits for lenders Fed rate hikes can actually encourage improvements in longer-term interest rates.

The all-important jobs report that was released on Friday showed disappointing results for the number of new jobs created in December.  Normally this would be positive news for mortgage rates since bad news for the economy tends to be good news for interest rates.

However, the report also showed higher than expected wage growth.  Since last year average wages increased by nearly 3% which was above expectations.  Wage pressure can lead to inflation which we know is not a positive factor for mortgage rates.

This week’s economic calendar is fairly light until Friday.  On Friday we’ll get the latest readings for retail sales, the Producer Price Index, and the Consumer Price Index.

Current Outlook: floating

Mortgage Rate Update January 5, 2017

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

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

Mortgage Rate Update December 19, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Housekeeping: This will be the last ‘rate update’ of 2016.  The next update will take place the first week of January.  Thank you for your interest in the content.  Have a happy and joyous holiday season!

Mortgage rates got stung following the Fed’s rate hike decision last week.

As expected the Fed hiked short-term interest rates by .25% on Wednesday.  As a reminder the Fed does not directly set mortgage rates but as we witnessed their comments can influence the financial markets.

In the Fed’s monetary policy statement they said they expect to hike short-term interest rates three more times in 2017.  This was more than the markets had been expecting and as a result long-term interest rates, including mortgages, moved higher.

Mortgage rates remained historically low throughout 2016 but ended on a sour note.

Both mortgage rates and the yield on the US 10-year treasury note have increased by ~.80% since election day.  I know I have been overly optimistic about a reversal for the past two weeks so I am hesitant to call one this morning but the markets are trading in our favor.

Strictly looking at technical trading signals the US stock market appears overcooked and interest rates appear ripe for a modest reversal.  Technical trading signals are often accurate but the timing of reversals can take longer than anticipated.  I recommend floating.

Current Outlook: floating

Mortgage Rate Update December 12, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates are worse than they were on Thursday of last week.

Higher oil prices are placing pressure on US interest rates.  Over the weekend a pact of oil producing nations reached an agreement to cut output of crude oil which is pressuring prices higher.  In the past announcements from the Organization of the Petroleum Exporting Countries (OPEC) have been viewed with skepticism but many analysts think this deal has merit.

Higher oil prices are pumping up inflation expectations and mortgage rates.
Higher oil prices are pumping up inflation expectations and mortgage rates.

Why are interest rates moving higher in reaction to higher oil prices?  Oil prices impact nearly every aspect of the economy.  Higher prices for oil will likely lead to higher prices for other goods and services.  Inflation is the primary driver of mortgage rates so when expectations for inflationary pressure rises rates follow suit.

The US 10-year treasury yield, which mortgage rates tend to follow, eclipsed 2.50% earlier in the day.  This marks the first time the US 10-year treasury note has hit 2.50% in over two years.  Mortgage rates have worsened by ~.125%.

The remainder of the week should be a busy one for the interest rate markets.  On Wednesday we get retail sales, the producer price index, and the Fed rate decision (the Fed is expected to hike short-term rates by +.25%).  On Thursday we get the consumer price index along with weekly jobless claims.

I still hold onto the belief that ultimately mortgage rates will improve modestly after the markets digest the Fed rate hike but I am less confident in floating because I’ve gotten burned a couple times in the past couple weeks.  The safe play is to lock.

Current Outlook: neutral

Mortgage Rate Update December 8, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates are modestly improved from Monday.  Pricing on mortgage rates improved the first three days of this week but have actually given a little back this morning.

The big news impacting the financial markets this morning is an announcement from the European Central Bank (ECB).  ECB President Mario Draghi stated that they would maintain their bond buying program to help support low interest rates in Europe but that they would scale back the volume of the purchases.  Initially interest rates here in the US moved higher on the announcement.

US stocks continue to trade at or near all-time highs.  When stocks do well mortgage rates tend to suffer.

As I have been stating since the end of November it is my opinion that US interest rates have overreacted to the results of the election.  History also supports this view.  The Wall Street Journal ran a graph showing the last few times that the yield on the US 10-yr treasury note have increased acutely.

Source: Wall Street Journal
Source: Wall Street Journal

Each time yields eventually stabilized and reversed lower.  There is no guarantee this will happen again.  Furthermore, if rates do improve from current levels I do not expect them to move all the way back to where they were prior to the election.  But, I do believe with time rates will move .125%-.25% lower.  I wish I knew when!

Current Outlook: floating

Mortgage Rate Update December 5, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

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 December 1, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates have worsened modestly this week.

On Monday I had recommended a ‘floating’ position with the hopes that the yield on the US 10-year treasury would respond to technical trading patterns and reverse below 2.38%.  Pricing on mortgage rates did improve Monday-Tuesday but starting yesterday rates have worsened.

The yield on the US 10-year treasury is now up to 2.46% and mortgage rates have worsened by .125% in response.

Wrfel mit Aufschrift JOBS auf einer Tageszeitung

Tomorrow we get the last all-important jobs report for 2016 (and the last one prior to the next Fed meeting).  The markets are currently expecting +180,000 new jobs added during the month of November.  Not coincidentally the average monthly job growth from January-October 2016 has been +181,000.

Aside from watching the number of new jobs added analysts will be keeping a close eye on average hourly earnings.  In last month’s report average wages increased by 2.8% compared to the year prior which represented the largest increase since 2009.  Should wages continue to press higher it would raise concerns about wage-based inflation.  Inflation is the primary driver of mortgage rates.

From a technical perspective the damage of not locking Monday-Tuesday has been done.  I am going to maintain a floating bias.

Current Outlook: floating

Mortgage Rate Update November 28, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates are effectively unchanged from last week.

Although there is no significant economic data out today the next few days will bring plenty of important data points.  Tomorrow we’ll get the latest reading of the Case-Shiller Home Price index and Q2 GDP.  On Wednesday we’ll see pending home sales, personal income, and the Personal Consumption Expenditure price index.  On Friday we get the all-important monthly jobs report.

As we know interest rates have risen sharply since the election and the technical trading patterns in the interest rate markets suggest we may be in for a brief reversal.  After reaching a multi-year high on Wednesday the yield on the US 10-year treasury note has bounced lower and I think it will move towards ~2.20%.

portland-mortgage-rates-10yr-11-28-16

Assuming this happens I would expect mortgage rates to improve by .125% compared to current levels.

Current Outlook: floating

Mortgage Rate Update November 21, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates look as though they may stabilize this week and possibly even reverse lower.

Since the election the yield on the US 10-year treasury note, which mortgage rates tend to track, has had its steepest two-week climb in over 15 years!  Meanwhile, the US stock market has reached all-time highs.

This week’s economic calendar is compact given the Thanksgiving Holiday on Thursday.  Tomorrow we’ll see the latest reading on existing home sales, on Wednesday we’ll get durable goods, new home sales, and minutes from the last Fed meeting.

Happy Thanksgiving message with a white pumpkin

Speaking of the Fed, earlier today Vice Chairman Stanley Fischer all but told the markets that they intend on hiking rates at their next monetary policy meeting.  According to CME Group there is currently a 95% chance they will do so.  A Fed rate hike could actually help mortgage rates at this point.

From a technical perspective the steep increase in mortgage rates looks like it may have gone too far.  I wouldn’t be surprised to see rates improve .125% later this week or early next.  We will float.

Current Outlook: floating

Mortgage Rate Update November 17, 2016

Posted on by Evan in Rate Update, Swanson Home Loans Blog - Mortgage Rate Updates and More

Mortgage rates have stabilized following last week’s rout in the bond market.

A fed rate hike next month looks to be certain following this morning’s remarks by Fed Chairwoman Janet Yellen.  She told lawmakers on Capitol Hill that a rate hike would come “relatively soon” which in her own cryptic way is being interpreted to mean ‘next month’.

Meanwhile, the Labor Department reported only 235,000 Americans filing for initial jobless claims last week.  This is the lowest mark in 43 years!  This weeks report is used as the sample week for the next monthly jobs report which will be released on December 2nd so lets not act surprised if that report shows strong growth.

The Labor Department also released its latest reading on the Consumer Price Index (CPI).  It showed that core prices rose by 2.1% as compared to a year earlier.  Consumer prices have now risen in seven of the past eight months and the pace of increases is increasing which gives credence for the Fed to hike short-term interest rates.

portland-mortgage-broker-housing-starts11-17-2016

In housing news the Commerce Department reported that the number of housing starts increased by 25.5% in October as compared to a month earlier.  This is the strongest pace since August of 2007 and is a welcome sign from the standpoint that additional supply should help dampen annual price appreciation to a more moderate level.

Everything I am reading is suggesting higher mortgage rates on the horizon so I will maintain a locking bias.

Current Outlook: locking bias