Mortgage Rates Heading Back to 18-Month Lows

Mortgage rates are heading back to 18-month lows again even though the resistance to get there seems to be a struggle. The most prevalently quoted conforming 30yr fixed rates for top tier borrowers remained at 3.75% with no fees, but 3.625% was also more prevalent with not as much fees that were quoted yesterday.

Even though the market traded only four days this week, market volatility kept us on our toes. Bonds and MBSs swung in wide ranges throughout the week on stimulus plans from the ECB, weak data from China and foreign currencies in what we call fast markets. The decline in the Euro currency against the dollar supports our bond market, foreign investors trading their currency for US dollars through investments in treasuries and equities keeps our rates low and feeds and acts like a back-stop for the stock market. This week the 10yr traded from a high at 1.96% to the low of 1.80%, not an unusual move except the intraday swings kept at least my stomach churning trying to make heads or tails on what to tell my clients.  I cannot say it enough that market volatility has been excessive and will not diminish anytime soon.

The week’s main topic was the ECBs QE package released yesterday, the ECB finally stepping up with a big purchase plan similar to the Fed’s QEs. The package is bigger than anything else the ECB has done since the financial collapse. Comments from ECB members underlined that their new bond-buying program will be extended if it does not show results. (Sound familiar?) The mortgage market yesterday sent the price down 50 basis points in the morning but rebounded by the end of the day to essentially unchanged.

The inability to foster any increase in inflation is the most significant issue the world faces these days. Today another country began to worry – Canada.  Do not take your eye off the ball, the lack of any inflation around the world is dangerous for all economies, it lessens the demand for housing for one thing, it keeps consumers from spending like they might if prices were increasing, eventually will press on businesses which in turn will keep wages from increasing. One benefit of no inflation is lower fixed interest rates - inflation is the death toll for investors holding fixed income investments. Low rates should heat up the housing sector but has not because the middle class and regular people are not in the mood to spend regardless of low rates.

This morning’s December existing home sales were soft, ending a three yr/yr improvement - any improvements in themselves are off norms prior to 2008.   The share of American home buyers making their first purchase dropped in 2014 to its lowest level in almost three decades. One reason given is that supply of homes for sale was weak. The number of previously owned homes on the market fell to 1.85 million, the second-smallest reading for any December since 1999. Nevertheless NAR is forecasting much better sales in 2015, the same they forecasted this time last year. Why are inventory levels so low? Spin it anyway you want, but the truth is hard to swallow - consumers are not motivated to move or buy. If those consensus views for increased interest rates this year come to pass housing markets will not hold up.

Next week the FOMC meets on Tuesday and Wednesday; members have a lot to think about, one thing they will not is say anything that will be concrete.

In summary, with the FOMC meeting on Wednesday the bond and mortgage markets may sit still until the policy statement is released next Wednesday. I do not expect interest rates will break their bullish technical biases. There is little reason to force interest rates higher – as it is best to continue to hold a bullish view for rates for now. Volatility will remain high next week for stocks and interest rate markets. As for the Fed’s plan to increase interest rates this summer, I do not believe the Fed will increase rates with US and global economies just muddling along---the US economy leads all but China in terms of GP percentage growth, but in China its economic growth has been halved in the last year. The Fed increasing interest rates will hinder growth such as it is.

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.