As 2018 draws to an end home loan rates benefit from stock market weakness
Happy holidays from all of us at Swanson Home Loans! This will be the last ‘rate update’ post of 2018 as the next two Tuesdays fall on a holiday. The next ‘rate update’ will be posted on January 8th! Have a safe and joyous season!
Home loan rates continue to benefit from weakness in the stock market. The S&P 500 index is off 13% from the highs reached back in early October.
If you are a consistent reader of this post then you know we started expressing concerns over stock valuations all the way back in the beginning of the year so we are not surprised to see this correction.
The Federal Reserve Open Market Committee begins its regularly scheduled two-day monetary policy meeting today. Tomorrow they will announce their latest monetary policy decision.
According to CME Group there is currently a 73% probability that they will hike by another .25% tomorrow. The Fed does not directly control mortgage rates so we’ll have to see how they react.
Should the Fed defy the odds and not hike I expect the stock market to rally which would likely hurt home loan rates.
Should the Fed hike the Federal Funds rate tomorrow by .25%, as expected, it will be interesting to see how the yield curve responds. The 2-year treasury note is currently yielding 2.66% and the 10-year treasury note is yielding 2.83% a difference of only .17%.
If the 2-year yield surpasses the yield on the 10-year treasury note it will be the first time that the yield curve has inverted since 2005-2007. Every time in recent history the US yield curve has inverted an economic recession has followed.
Unfortunately many analysts are growing pessimistic on their economic outlook which is partially why we’ve seen home loan rates improve in the past month. As long as this viewpoint holds I will recommend floating.
Current Outlook: floating