Tag: government shutdown and mortgage rates

Threat of government shutdown helps mortgage rates remain low

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

Are you having withdrawals from the ‘round the clock media coverage of the federal government shutdown?  Don’t worry, without a fresh funding bill the government will shut down this Friday at midnight.

Or will it?

Agreement in Principle

According to multiple reports republicans and democrats have reached an agreement to fund the government past this Friday.  Assuming the bill is passed and a shutdown is avoided I would expect the stock market to rally (it is up 200 points this morning) and interest rates to increase modestly.

Mortgage Rates

In the meantime, home loan rates remain at 9-month lows and there is plenty of uncertainty to help keep them low.  The US and China continue seemingly endless trade talks.  If and when there is a trade deal it could spark a stock market rally and hurt mortgage rates.

As I wrote about last week uncertainty about Brexit is also helping US mortgage rates remain low.

On tap this week

Tomorrow the Labor Department will release the latest Consumer Price Index (CPI).  Inflation is the primary driver of mortgage rates because it reduces the purchasing power of dollars repaid to a lender in the future.  Higher inflation results in higher home loan rates and vice versa.

I’ll also be watching the Producer Price Index which is released on Thursday and Consumer Sentiment on Friday.

Outlook

Mortgage rates remain in a long-term downward trend which I highlighted in last week’s update (see HERE).  I will maintain a floating position but am concerned that rates may reverse higher if a government funding deal is reached.

Current Outlook: cautiously floating

Mortgage Rate Update October 7, 2013

Posted on by Evan in Rate Update

Mortgage rates are slightly better to start the week.  In case you live under a rock I will remind you that the partial government shutdown continues for the 7th day.  Initially I thought this shutdown would be short lived but clearly that prediction was wrong.

Over the weekend House Speaker John Boehner announced that he would not bring a bill to fund the government to vote unless Democrats agreed to talks aimed at trimming the deficit.  The announcement is being explained from a variety of perspectives but the bottom line for mortgage rates is that it introduces greater uncertainty.  Uncertainty leads to a “flight-to-safety” on the part of investors which benefits mortgage rates.

In case you’re wondering, during the previous partial government shutdown that took place in November 1995-January 1996 mortgage rates also fell.

1007 govie

Normally on Monday I would forecast the week’s economic calendar.  However, given the partial shutdown most of the reports due out on an already light calendar will not be delivered.

In the absence of fresh economic news focus will rest on developments in the budget negotiations and technical trading patterns.  We’ve had a nice ride lower over the past couple weeks.  My concern is that once Congress gets a deal figured out we will give our gains back in a hurry.  For now we will be remain in a floating position but I’ll remain on guard.

Current Outlook: floating

Mortgage Rate Update September 30, 2013

Posted on by Evan in Rate Update

Although stocks are down sharply this morning mortgage rates are unchanged from late last week.

The Dow Jones Industrial average slumped 70 points on Friday and is down over 100 points in early morning trade today.  Investors are bracing for a possible government shutdown as House Republicans and Senate Democrats cannot reach an agreement to pass the stopgap spending bill.

The money that is coming out of the stock market is not getting re-invested into the bond market which is why rates are unchanged from late last week.  Why might this be the case?

One explanation is that although a government shutdown seems more likely given the timeline the markets do not believe a shutdown would last very long.  Therefore, the impact on the economic recovery is likely to be insignificant.

A second explanation may be due to technical trading patterns.  Since September 6th mortgage rates have improved by ~.375% as mortgage-backed bonds have improved 11 out of the past 16 trading days.  A run like this makes investors concerned about a reversal.

MBS PRICES HAVE IMPROVED 11 OF THE PAST 16 TRADING DAYS. HAS THE RALLY, WHICH HAS PUSHED MORTGAGE RATES ~.375% LOWER, LOST STEAM?
MBS PRICES HAVE IMPROVED 11 OF THE PAST 16 TRADING DAYS. HAS THE RALLY, WHICH HAS PUSHED MORTGAGE RATES ~.375% LOWER, LOST STEAM?

Lastly, a third explanation is that we have  a very busy economic calendar this week that includes the all-important jobs report on Friday.  Investors may not want to jump into bonds and then have a run of positive economic news hurt their positions.

That said, if the day wears on and uncertainty grows regarding how long a shutdown will last these investors may take positions in the bond market which would help rates.  I will start the morning in a floating position but am prepared to shift to locking if lawmakers can find a deal to pass.

Current Outlook: floating