Mortgage Rates Increasing As Tax Bill Looks to Be Passed This Week

Interest rates started higher this morning, and at 11AM, the bellwether 10yr is currently at 2.45% (well past it’s comfort level) and rising with MBS prices following the same trend on the negative side.

Early this morning the November housing starts and permits had their expectations exceeded as well as the October numbers were revised to higher numbers than reported.  The only bad part of the report was the total completions as they fell 6.1% to a 1.116 million rate which is bad news for supply, where thin conditions have held back sales. But homes under construction rose, up 1.0% to 1.110 million. Regional data show start strength in the West and South where permits were also strong in possible evidence of a hurricane reversal. Overall, a much better housing report than was expected; starts were expected -3.8% and permits expected -2.10%.

Stock indexes started out on the positive side, but are currently even which is surprising as it would be natural for them to increase on the certainty now that Trump will have a tax cut bill possibly by Friday. It is not all happiness.  Obviously, Democrats are not on board, much of it political, but this morning Democratic Senator Mark Warner, a businessman and someone considered a centrist in the Democratic party in an interview on CNBC: asked about whether he believed the cuts would boost economic growth, he responded, “Not only will it not boost, but I believe it's the single worst piece of legislation that I've seen since I've been in the Senate.” Warner’s interview was long, but the core concern he has is that the projections of increased growth and higher wages will not meet the Republican forecasts.

The arguments over economic benefits of this massive cut are many, but two stand out - it will happen with borrowed money, increasing the debt that is now $20 trillion and with full employment, some believe that the economic growth projections are not possible to be achieved as markets are presently convinced. Alan Greenspan has argued that if you have close to a full economy - as we have right now with virtually full employment - and you do a massive tax cut with all borrowed money, you do not see any of the growth projections they have forecast.

The House will vote on the tax cuts this afternoon; the Senate is likely to vote this evening. President Trump could sign it by Friday in what will be a huge media event. The last major tax cut back in the mid-80s took over one year to resolve and did include both parties.  This one did not get underway until the first of November with no bi-partisan involvement.

The 10yr is under pressure and the clock is ticking.  Even with the stock indexes slowing down their upward trend, this bill will be signed, and I anticipate that the mortgage rates will increase. Look for continued volatility until this all happens. As I used to say in the old days of fax machines, Lock and Load!