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