Mortgage rates are starting the week priced slightly better than where they ended last week. Having said that, mortgage-backed bonds are currently trading lower so I wouldn’t be surprised to see rates worsen slightly in the next 24-48 hours.
It’s a new week but we’re following the same storyline. The fiscal cliff will absorb the financial markets attention over the next 6 weeks. Lawmakers in Washington DC have until December 31st to hammer out a deal to prevent automatic tax hikes and spending cuts from taking place. According to the Economist these measures would negatively impact US GDP by 5% in 2013 which is problematic given our economy is currently only growing at 1-2% per year.
Given the results of the election (GOP controls House of Rep’s, Dem’s control Senate & White House) it is widely expected that negotiations will go down to the wire and the only questions are how much and how long the deal will reform government spending and taxation.
How will these negotiations impact mortgage rates?
First off, I expect significant volatility as market sentiment swings from optimism to pessimism. We want to lock when the market is pessimistic as that should bring mortgage rates down.
Secondly, a move towards resolution or indication of a long-term solution will likely push rates higher because it lessens the likelihood that the US economy will actually fall off the “cliff” (and vice versa).
Current Outlook: near-term locking bias