US 10-year treasury note dips below 2.00%, mortgage rates improve

The fourth of July is right around the corner which means it’s time to start looking for the best place to buy fireworks.  Some people look for the lowest prices but as my friend Rob Chrisman advises the best fireworks can be found where the salesperson has three fingers and an eye patch.

Interest Rates

Interest rates around the globe continue to trend lower.  The yield on the US 10-year treasury note, which mortgage rates tend to track, has pierced below 2.00% for the first time since 2016.

What’s this mean for mortgage rates?

Home loan rates are currently at the lowest levels since 2017 based on the US 10-year treasury note hovering around 2.00%.  If the US 10-year treasury dips down to the lows of 2016 (~1.4%) then we could see mortgage rates improve by another .50%.

There is no guarantee that this will take place but momentum appears to be on our side.

Home Prices

The S&P CoreLogic Case-Shiller home price index for April was released earlier today and showed that home price appreciation nationwide was +2.5% year-over-year.  Here in Portland home prices grew by +2.6% which was unchanged from the month before.

I suspect home price appreciation may pick up a little in May and June given that interest rates have improved significantly since April.

The Week Ahead

Later today Fed Chairman Jerome Powell is scheduled to speak.

At the beginning of the year the financial markets were predicting the Fed would hike short-term interest rates twice during 2019.  Now expectations are that the Fed may cut rates twice.  Chairman Powell’s comments will be closely watched in the coming weeks.

On Thursday we’ll get the latest reading on pending home sales and ono Friday we’ll get the Fed’s favorite gauge of inflation (PCE).

Given that momentum is still on our side I will maintain a floating position.

Current Outlook: floating bias

Might low unemployment signal a recession near?

On this day in 1896 the chief engineer of Edison Illuminating Company first test drove the “Quadricycle” he had developed.  That engineer’s name was Henry Ford and the “quadricycle” would eventually be commonly known as a car.  

The next stage of automobile evolution is expected to be the driverless car.  CLICK HERE to learn how they may impact real estate values.  

Jobs, Jobs, Jobs

Friday’s all-important employment report showed continued strength in the Labor Market.  According to the release the US economy added 223,000 new jobs, average hourly wages rose, and the unemployment rate decreased to 3.8%.  

Seemingly a healthy jobs market is a great indicator for the housing market.  However, there are two concerns that arise from the report.

#1: Inflation & Home Loan Rates

Job growth coupled with a low unemployment rate means employers will have to pay higher wages to attract workers.  This is great for employees but also can lead to wage-based inflation where producers are forced to charge higher prices.  

Since inflation is the primary driver of mortgage rates strong job growth becomes a double edged sword for housing demand.

#2: Recession near?

The US economy has been growing for more than eight years now making it one of the longest expansions in recent history.  Dating back to World War II recessions have always followed cyclical low points in the unemployment rate as the chart above shows (grey shadowing signals recessions).  

I subscribe to the belief that we are 12-24 months away from a recession.  Mortgage rates tend to drop during recessions so it might make sense for homebuyers to consider 5/1 & 7/1 ARM’s at this time.

The Week Ahead

This week’s economic calendar is relatively light.  The US Treasury will auction 10-year notes and 30-year bonds this Thursday.  The additional supply of longer-duration securities will make it difficult for rates to improve.  Furthermore, the political drama in Italy seems to be quieting down.  I will recommend a locking bias.  

Current Outlook: locking

Higher oil prices pressure home loan rates higher

They say that weddings are getting more and more expensive.  In fact, the average cost of one surpassed $30,000 in 2017.  That is enough to put 5% down and pay closing costs for a median priced home in Portland, OR..   

As I type there are four days, six hours, and 27 minutes until the royal wedding for Prince Harry and Meghan Markle.  That ceremony is estimated to cost $2.8 million which could be used to put 5% down on THIS HOME.

Mortgage Rates  

Unfortunately mortgage rates worsened modestly last week as US stocks rallied.  The US stock market registered its best week in over two months which put upward pressure on home loan rates.

Oil prices

Geopolitical tension in the middle east coupled with uncertainty around Iran economic sanctions further supported oil prices last week which are now at three and a half year highs.

Higher oil prices are problematic for interest rates because they tend to be inflationary and inflation is the primary driver of mortgage rates.  

The Week Ahead

This week’s economic calendar is relatively light.  It features a slew Fed officials speaking around the country.  The Fed does not directly control mortgage rates but their comments can certainly influence them.  

According to CME Group there is currently a 95% probability that the Fed will hike short-term interest rates at the next meeting on June 13th.  There is a 50% probability that the Fed will hike short-term rates three more times in 2018.


Due to momentum and the longer-term trend for interest rates I favor a locking position this week.

Current Outlook: locking

Mortgage Rate Update January 30, 2017

Mortgage rates are moderately improved from Thursday.

On Friday the Commerce Department released Gross Domestic Product figures for the final quarter of 2016.  It showed that the economy expanded by a 1.9% annual pace for the final three months of the year which is lower than the markets were hoping for.

The current cycle of economic expansion began back in 2009 making it one of the longest on record.  However, since then the overall economy has only grown by 15.5% making it one of the shallowest as well.

Source: Wall Street Journal

This week’s economic calendar is a busy one.  Earlier today we got the latest reading on the Personal Consumption Expenditure Price Index which is the Fed’s favorite gauge of inflation.  Excluding volatile food and energy prices the index rose by 1.7% from last year which is still below the Fed’s target of 2% but trending higher.  Inflation is the primary driver of long-term interest rates.

On Wednesday the Fed will release its latest monetary policy decision.  It is widely expected that the Fed will leave short-term interest rates unchanged after hiking in December.  However, as we know their comments can also impact the financial markets.

Lastly, on Friday we’ll get the latest all-important jobs report.  I will focus on that in my Thursday ‘rate update’.

Mortgage rates are attempting to improve but face strong technical resistance.  I recommend a locking bias.

Current Outlook: locking

Mortgage Rate Update November 19, 2012

Mortgage rates are starting the week priced slightly worse than late last week (note rates are unchanged).

In Thursday’s ‘rate update’ I pointed out that mortgage rates had benefitted from a 1,000 loss in the stock market over the previous month.  This morning stocks are reversing course on strong housing data and optimism about a resolution to the fiscal cliff.

According to reports bipartisan lawmakers have agreed in principal on taking a 2-step approach where a “down payment” is made in 2012 on fixing the fiscal cliff and more permanent adjustments are made next year.  Furthermore, at least at this point both Republicans and Democrats are in agreement that revenues (AKA taxes) will be raised.  The reduction in uncertainty is why the stock market is rallying.

In housing news existing home sales were reported to increase by more than expected last month.  In a separate report homebuilder’s confidence hit the highest point in over 6 years.

At this point it looks like rates may inch up slightly this week but the fiscal cliff negotiations are far from over.  Furthermore, geopolitical tension in the middle east should help rates remain low.

Have a great THANKSGIVING!  Rate Update will be back one week from today.

Current Outlook: neutral

Rate Update July 27, 2010

Mortgage rates are unchanged so far today but we may see them move higher as the day goes on.

The “flight-to-quality” trade is unwinding a bit in the financial markets today.  Stronger than expected earnings reported by European banks is cultivating some confidence in the equity markets.  As a result we’re seeing yields move modestly higher so far today.

10 year treasury yields have broken through technical resistance while the S & P 500 pierced through it’s 200-day moving average.  From a technical perspective this could mark a trend reversal which has me concerned.

Standard & Poors released the Case-Shiller Home Price Index report for May.  It showed positive growth but must be taken with a grain of salt since the first-time homebuyer tax credit was still in effect.

Due to the technical trading patterns I am going to shift to a locking stance.

Current outlook: locking

Rate Update July 31, 2009

After moving higher yesterday, mortgage rates have reversed back down to the levels seen on Wednesday.  Why the sudden reversal?

In yesterday’s ‘rate update’ video I reported that foreign participation in the US Treasury auctions were relatively light through Wednesday.  This is a bad sign for mortgage rates because if foreign investors don’t buy our bonds the US is forced to raise the yields on the notes to attract buyers.

In yesterday’s auction of 7-year notes foreign buyers showed up easing concerns in the marketplace.  As a result mortgage-backed bond prices rallied and recovered the losses incurred over the past 24 hours.

The Commerce Department reported better than expected GDP numbers this morning for the 2nd-quarter.  Good economic news is often bad for mortgage rates but a closer look into the GDP report shows troubling signs.  Consumer spending retracted in the 2nd-quarter after growing in the 1st and 1st-quarter GDP was revised lower.

For now we’re going to shift into a neutral position.

Current Outlook: neutral

Rate Update July 28, 2009

Mortgage rates are unchanged from yesterday.

As I explained in yesterday’s ‘rate update’ we are closely watching the level of foreign participation in this week’s US Treasury auctions.  Today there will be $42 billion in US T-bills sold to the market.  We wouldn’t surprised to see mortgage rates increase due to the additional supply of bonds on the market.

S & P released their monthly Case-Shiller real estate report.  Many experts consider this report to be the most accurate measure of home prices (click here to understand why).  The report showed that home prices declined on a year-over-year basis at the slowest pace in 12 months.  Many analysts are interrupting this as more evidence that the housing market is at or near bottom.

If you haven’t yet read about the new federal mortgage rules which take effect July 30 and could delay real estate closings you can do so by clicking this link.

Current Outlook: bias towards locking on short-term transactions with additional supply of treasury bills.

Rate Update July 24, 2009

Mortgage rates are unchanged from yesterday (mortgage rates moved modestly higher yesterday. See this morning’s you tube video to learn more about the cause of mortgage rates increasing and what we can laern from it.

The chart below shows mortgage rates ticking higher after hitting a low:

Rate Update June 23, 2009

As we know mortgage rates typically rise when the stock market rallies.  That is the case this morning with the Dow Jones Industrial Average surging past the 9,000 mark for the first time since January.

Stocks are rallying on a flurry of positive earnings data from Ford Motor Co., AT&T, and 3M.

However, stocks are also benefiting from National Association of Realtors report which showed that existing home sales rose for the 3rd straight month in June.  The same report also showed that inventories fell to 9.4 months vs. 9.8 the month before.  This is great news to share with homebuyers who are concerned about the housing market.

There is significant technical support for mortgage-backed bonds at present levels but we still think locking is the best play if you haven’t already.

Current Outlook: locking