Mortgage Rates See Pull-Back

Mortgage rates were steady to slightly higher today, as there was no direct news other than a weaker MBA mortgage applications data.

The Fed released its Beige Book this afternoon, used by the FOMC when it meets in two weeks. Not much new, moderate growth, employment strong, labor market is tight, wage gains are modest but have broadened. A larger number of firms mentioned higher turnover rates and more difficulty retaining workers. Home sales slowed but residential construction growth accelerated. Retail prices are advancing only slightly. Input prices outpaced growth in selling prices. More than half of the reports suggested that loan volumes increased, while only one said they were down modestly. The New York region reported "little” adverse effect from the mid-March snowstorm".

The softer data so far in Q1 revives the idea the Fed may not be able to move rates higher at the June meeting that was the next potential move. The trading in the FF futures markets has just a 35% possibility now that the Fed will move in June. It is a moving trade however, and subject to each key economic report.

Since the middle of March, mortgage rates (and indeed, rates in general) have been trending steadily lower.  When any financial instrument (rates, stocks, currencies, etc.) is in this type of trend, there will be some difficulties.  With the trend in rates being lower, most of the days have been "down" days, but there have been several pull-backs along the way.  Today the DJIA came under pressure and that did not budge the bond or mortgage markets. We still expect that interest rates have more to go in this rally and the French election does put some support in US treasuries. The election, the first of two, is scheduled for this Sunday, another country that may be on the brink of leaving or altering its membership in the EU.

With all this downward momentum, and then to get a pull-back thrown in, does this mean you should rest easy and assume that the previous trend will resume and you will soon be seeing even lower rates?  Not necessarily.  The trend could be over at any time.  The point is that this one day of bond market weakness does not defeat the trend in and of itself. 

For the most risk-averse borrowers, this presents a good opportunity to lock - especially with rates this low.  More risk-tolerant borrower can wait to see if rates move even further downward.

In summary, bond markets surrendered a portion of their recent gains today, and mortgage pricing worsened slightly.  "Losing" days are inevitable during market rallies, and it is bullish to see today's losses are still less than yesterday's gains.  With rates near late November levels, borrowers are in good shape.  There is only minor economic news the remainder of the week.  The trend is still our friend.