Mortgage Rates Continue a Downward Trend

Mortgage rates continue a downward trend with the issues in Europe playing havoc on the bonds and securities in the US.   The most prevalently quoted conforming 30yr fixed rates for top tier borrowers was being pushed at 3.625%.

The US awoke this morning to unexpected and surprising news that the Swiss National Bank announced it was abandoning the Swiss franc/euro currency ratio at 1.20 francs to 1 euro. The ratio had been in effect for about 4 years, the reason the SNB said was concern that the ECB will announce a major QE to purchase billions of Eurozone debt. Most analysts expect the ECB to launch such a policy, known as quantitative easing, at its Jan. 22 meeting. Hundreds of billions in freshly created euros flooding the markets had led to a significant weakening of the euro’s exchange rate, particularly against the U.S. dollar, making the Swiss National Bank’s currency cap an increasingly risky and costly endeavor. Try to untangle the logic of central bankers is becoming difficult for many investors; the move suggests there will be increased volatility in the currency markets and global interest rate markets, including the US.

More fears about potential deflation this morning with the Dec PPI declining 0.3%, the largest monthly decline in three years. The same ole story, there is no pricing pressure anywhere - wages are not going up and commodities led by crude continue to decline as demand is slowing. Most economists I read think that this year’s wages will begin to increase as the economy recovers. The irony in that view is that most expect the US GDP in 2015 to be 3.0%. The Fed, the ECB, the BofJ, the UK central bank, and other central banks may have saved the global economies from depression in 2008 but since then central banks have had very little success in boosting global growth.

Interest rates appear to have no bottom in terms of yield until the 10yr falls to zero percent. No, I doubt zero is in the cards but today the 10yr dropped to 1.71%. Since Christmas Eve the 10yr has fallen 1.37%, a rush not seen in years. The world’s investors as well as local investors are stampeding to US markets for safety and the best rates of most other sovereign (not including countries that are living on life support). It has been a nice ride to lower interest, but the time/price correlation is becoming a concern for us now. The potential of a sizeable correction has increased – and it could happen any day now. When the reversal happens it will not destroy our underlying longer term bullish bias. A pullback is close now.  The mad rush to treasuries is likely to cool soon.

In summary, rates continue to drop as they are being pushed by global events – but they cannot continue down this path as fast as they are going down.  The timing is due for either a pause or even a pull back.  Personally, I would not hesitate to grab this rate as these are the best I have seen in two years.  I do not know if I have the stomach to carry the risk as the rewards has been good thus far, but greed can be dangerous.

Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit my website at www.CallTheMoneyMan.com. I have access to real time Wall Street data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.