Mortgage Rate Update December 7, 2015

Housekeeping note:Rate update’ will be on vacation (and hopefully on a golf course) this Thursday.  You can expect it to return one week from today.

Mortgage rates are unchanged from last Thursday.

We are now only 9 days from the Fed’s next announcement regarding US monetary policy.  The financial markets have priced an ~80% probability that the Fed will hike short-term interest rates at this next meeting.

As I have stated numerous times on this blog a Fed rate hike does not necessarily mean that mortgage rates will immediately increase.  My friends over at mbshighway.com put together a great graph showing how mortgage rates reacted to the last tightening cycle which took place from June 2004 until July of 2006.

10-year Yield vs Fed Funds Rate12-7-2015

As you can see mortgage rates actually initially declined and then held mostly stable over the duration of this period.  How is this possible?  When the Fed raises short-term interest rates their objective is to curb inflationary pressure in our economy.  Inflation is the nemesis of mortgage rates.  Therefore, as the Fed hikes rates they concurrently curb inflationary expectations which is positive for long-term interest rates, including mortgages.

The economic calendar is relatively light this week.  We can start the week by floating.

Current Outlook: floating