Mortgage Rate Update January 17, 2017

Mortgage rates remain at the best levels following the election and about .25% improved from recent highs.

Inflation expectations is the primary driver of mortgage rates.  This is because inflation erodes the purchasing power of future interest payments.  Therefore, when lenders think inflation will rise in the future they charge higher rates of interest to compensate and vice versa.

Following Donald Trump’s election investors expected higher inflation because of his campaign promises to increase government spending (infrastructure) while cutting taxes.  However, the financial markets are now tapering inflation expectations.

Inflation adjusted treasury yields (nominal yield minus current inflation) have declined to the lowest levels since the election and mortgage rates have also improved off recent highs.

Speaking of inflation the release of the latest Consumer Price Index is scheduled for tomorrow.  It has been trending higher as of late and if this trend continues then of course we’d expect upward pressure on mortgage rates.  Aside from the CPI the remainder of the week looks to be fairly quiet.

From a technical perspective the gradual improvement of interest rates over the past month may be running out of steam but for now we’ll try to remain on track.  I will continue to float but with a more cautious outlook.

Current Outlook: floating