Mortgage Rates Continue to Move Lower

Mortgage rates continued a strong move lower today as momentum continued following yesterday's Fed Announcement.  While the Fed doesn't dictate mortgage rates, this particular announcement sent shockwaves through all corners of financial markets.  It wasn't so much that the Fed avoided raising rates as it was the implicit commentary on the fragile state of the global economy.  A weaker economic outlook tends to put downward pressure on longer term rates like 10yr Treasury yields and mortgage rates.

Now that the FOMC has ruled and kept rates unchanged, do not believe it is over. This thing with the Fed is not going to end this year or next. Take a short breath before it begins again next week. The major take away from yesterday was that this was the first time the Fed officially made the global economic slowdown a key factor in the debate about when to increase rates. I have written about the global slowing for months now but until yesterday the Fed had outwardly ignored the reality the US is no longer a stand-alone economy. Continued weakening of world economies will infect the US - actually it already has with declining exports and multi-national businesses slowing (H-P cutting another 50K jobs). It is not enough anymore to simply look at domestic economic reports, global economic reports have now edged up on the important list of concerns - at least the Fed has finally gotten the message, although we know the Fed has not been ignoring what is happening globally, it just brought it to the forefront in terms of discussions on rate increases.

Next week on Monday we will see the report on August existing home sales. Tuesday, Treasury begins three days of auctions with a 2yr note, FHFA house price index. Wednesday 5yr note auction. Thursday August durable goods orders, August new home sales, 7yr note auction. Friday the final Q2 GDP report, consumer sentiment from the U. of Michigan.

Should you lock or float?  In a word: yes.  No one could fault a lock decision with rates near 4 month lows.  For those who understand and accept the risk of loss, that risk is now much smaller than it was heading into yesterday's Fed Announcement.  If rates ended up being higher next Monday, floaters would essentially be paying for the chance to see if this winning streak can continue.

In summary, all the fear of rising interest rates in the near term evaporated yesterday when the Fed threw everyone a little curveball suggesting that rates may be lower for a longer time.  How much longer is still up in the air.  So, I think we have gone back to a rate environment for borrowers where one can be more patient to lock in if they have a longer term closing period (beyond 30 days).  But, the Fed may have also injected the potential for more volatility so I would still be monitoring things closely and be in a position to pull the trigger if necessary.  If you like what you got right now, and you are closing is less than 30 days, locking up pricing on a positive day makes perfect sense.