Mortgage rates essentially held steady last week despite the stock markets continued rally. The Dow Jones Industrial Average has returned 23% year-to-date while the NASDAQ index is up 27%. Despite those gains mortgage rates have held steady this year. I expect they will likely increase by .50%-.75% in 2018.
The job’s report
Friday’s all important jobs report showed stronger than expected employment.
According to the survey 228,000 new jobs were created during the month of November, the unemployment rate remained at 4.1%, and average hourly earnings only ticked up by $.05 ($26.55).
Healthy economic growth with low inflationary pressure persists which is good news for the real estate market.
Central Banking
This week’s economic calendar is loaded with central bank meetings.
The US Federal Reserve board will meet starting on Tuesday and is widely expected to hike short-term interest rates by .25% with that announcement expected on Wednesday.
The Fed does not directly control home loan rates but their comments can cause volatility in the financial markets. Furthermore, with short-term rates increasing and long-term rates unchanged the yield curve is flattening which may signal a recession is on the horizon (or higher longer-term rates).
On Thursday both the European Central Bank (ECB) and the Bank of England release monetary policy statements as well. Both are expected to keep their target rates unchanged but economic growth in both regions has been positive and many onlookers believe the ECB will discontinue their bond-buying program in 2018.
If the ECB does roll back their quantitative easing program it would likely cause rates in Germany to increase which would likely pressure US interest rates higher as well.
Inflation?
Back in the US inflation measures have come in pretty close to the Fed’s 2% target this year. On Tuesday we’ll get the latest reading on the Producer Price Index followed by the Consumer Price Index on Wednesday. Inflation is the primary driver of mortgage rates so continued tameness will be a positive sign.
From a technical perspective mortgage backed bond prices have dropped below important technical support. It will be hard for prices to reverse back above the multiple layers they have broken below. I will recommend a locking bias.
Current Outlook: locking