Mortgage rates continue to trend lower

It would be glamorous to be reincarnated as a great big ring on Liz Taylor’s finger.”- Andy Warhol

Happy birthday to Andy who would have been 91 today.

Interest Rates

We’ve held a “floating” position for some now and it’s paid off.  Mortgage rates are at their best levels in over three years and some analysts are calling for them to continue to trend lower.

10-Year Treasury Note

The yield on the US 10-year treasury note, which mortgage rates tend to track, has fallen from 2.05%  to 1.75% in the past 5 days.  Over that time mortgage rates have improved by .125%.  I won’t be surprised if mortgage rates improve by another .125% over the next couple weeks.

Yield Curve

With yields falling for longer duration bonds we are back in a scenario where the yield curve is inverted.  Many economists think an inverted yield curve is a signal of an impending economic recession but there are never any guarantees.

China Trade Tensions

Concern over trade tensions pushed US stocks sharply lower on Monday.  At the moment it appears that the US and China are a long ways from solving their trade disputes.  This is not favorable for near-term economic growth but favorable for US interest rates.


From a technical perspective mortgage rates are benefiting from momentum.  We could see rates go up later this week but I still believe we are in store for lower rates in the coming months.

Current Outlook: floating bias


What goes up……might come down?

If you are a believer in the proverb “what goes up must come down” then last week doesn’t hurt so bad.

Home Loan Rates

Mortgage rates suffered the biggest increase in one week since the presidential election in November 2016.  Interest rates rose by +.25% last week.


It seems obvious that as the cost of borrowing increases affordability of homes worsens.  But how much? For every 1% increase to interest rates purchasing power decreases by 12% for homebuyers.  

Therefore, homes got 3% more expensive in five short days.


The good news and bad news is that average hourly wages are increasing in the US.  Over the past year American workers have seen their pay increase by 2.9%.  That is good news because it allows households to afford higher mortgage payments but bad news because it helps contribute to higher interest rates via wage-based inflation.

Why are rates rising?

One of the primary reasons why we’re seeing mortgage rates rise is because the Fed is no longer supporting them.  I explained this concept back in February (HERE).  For years the Fed had been purchasing mortgage-backed securities via quantitative easing.  Instead of stopping the support immediately they gradually tapered their activity.

As recently as September they had been reinvesting some of their capital into the mortgage-backed securities market.  Starting on October 1st that activity has ceased and as a result interest rates have risen in order to attract capital from other places.

The week ahead

The economic calendar is relatively light this week.  There are three Fed officials speaking today.  Tomorrow we’ll see the producer price index and on Thursday we’ll get the consumer price index.  Since mortgage rates increased so sharply last week I am going to recommend floating this week in the hopes that what goes up must come down.  

Current Outlook: floating bias

Mortgage Rate Update April 14, 2016

We had switched to a locking bias on Monday and that has proven to be the right call.  Mortgage rates have worsened very mildly since Monday.  This statement will contradict what you’ll hear from the media over the next couple days.

The Freddie Mac Primary Market Survey, which is what major media outlets tune into, was released today and showed that rates dipped slightly from last week.  Freddie Mac’s survey lags the market.

Lenders voluntarily submit interest rate information Monday-Wednesday of every week and then Freddie Mac releases the results on Thursday.  The results today simply show that mortgage rates were lower this Monday-Wednesday as compared to last Monday-Wednesday.  Unless rates move lower Monday-Wednesday next week next Thursday’s report will confirm that rates have worsened slightly.

Looking at the markets, the Consumer Price Index (CPI) was released today by the Labor Department and it continues a trend of tepid inflationary pressure.  This is friendly news for mortgage rates as inflation is the nemesis of long-term interest rates.

In a separate report weekly jobless claims matched the lowest level in over 40 years.  This is a positive sign for the economy which tends to be bad news for mortgage rates but at this point rates have not reacted.

From a technical perspective the US 10yr treasury yield and mortgage-backed bonds are trading at important levels after worsening over the last 3 days.  I am cautiously optimistic that they will catch technical support and rates will return to the levels we had at the beginning of this week.  But we need to be cautious given that rates are very near all-time lows.

Current Outlook: floating bias