Mortgage Rate Update February 1, 2016

Mortgage rates are slightly better as compared to last week.

Last Friday the Bank of Japan, which is the central bank, surprised the global markets by cutting short-term interest rates in that economy.  Their short-term interest rates are now negative which means commercial banks must now pay the Bank of Japan for the privilege of parking cash in their vaults.  The purpose is to encourage banks to lend money to businesses and consumers to increase economic activity in that country.

Last week the Bank of Japan surprised the global markets by cutting short-term rates into negative territory.
Last week the Bank of Japan surprised the global markets by cutting short-term rates into negative territory.

That announcement coupled with the possibility that the European Central Bank increasing stimulus efforts in March puts the United States Federal Reserve in an awkward position because they had intended on hiking short-term interest rates this year.

In domestic economic news, the personal spending report was released earlier today.  embedded inside this release is the Fed’s favorite gauge on inflation known as the Personal Consumption Expenditure Price Index (PCE).  The PCE showed that prices in the US economy increased by only 1.4% over the past 12 months which is well below the Fed’s target of 2.0%.  One thing to note about the PCE is that it does not include out of pocket costs for health care or the cost of housing (rent/ home prices).   Given that home prices and rents have risen so rapidly in the past 24 months I think we need to accept today’s report with a giant grain of salt.

Looking ahead and the remainder of the week the all-important jobs report will take center stage.  From a technical perspective mortgage rates have had a great run.  I am concerned that we will see a reversal of sentiment in the markets.  I am maintaining a locking bias.

Current Outlook: locking bias

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