Mortgage Rates Continue to Improve

Mortgage rates inched slightly lower today, adding to an already impressive string of improvements in the new year.  Rates typically take most of their cues from economic data, but that has not been the case this week - at least not in the traditional sense.  Instead of US economic data being the center of attention, it's instead been the volatility in global stock markets.  Successive days of heavy losses have pulled down stock prices worldwide, and sent investors fleeing for safer havens.

China is leading the markets lower, its economy is nowhere as good as the central planners have forecast, the yuan is in chaos, circuit breakers stopped all trading within 30 minutes of the opening this morning. It made a huge mistake setting circuit breakers too short adding increased volatility and uncertainty, not allowing more trading. Last evening in China it announced the end of those circuit breakers designed to stabilize momentary market turmoil. In the US our market circuit breakers do not come into play until markets drop much more based on percentage drops.

Many have been expecting a major decline in US equities but this move is not what was expected - that will likely occur later this year as corporate earnings decline. This present crisis is not likely to be long lasting - Chinese will stabilize eventually but its economy will not meet the growth the government recently forecast. Once this current situation ebbs expect investors, money managers and Wall Street firms to climb back on the band wagon for what is likely to be the last significant rally for the next few years.

The good news - bond and mortgage markets are very orderly not joining to equity markets chaos. Yes, the Fed is still thinking about more rate increases this year though the number and amount of tightening moves is likely to be less than what Yellen and other Fed officials were saying two weeks ago. If the housing markets slow this year it will not be due to increasing interest rates, the slowing economic growth will be the cause if housing slows. How this year will play out is difficult to be completely confident regardless of what one’s expectations may be. That will lead to 2016 being very volatile with wide swings in equity markets.

Tomorrow December employment data, and to my surprise, it has been a rare thing that there is no chatter about it.  Tomorrow morning's Employment Situation is the most important piece of economic data on any given month.  It will provide the ultimate test to see if rates are truly willing to ignore the economic data and continue following stock prices.

In summary, more help from China has helped bonds improve once again today.   With non farm payrolls hitting tomorrow morning, it is best bet to lock loans now.   It is always extremely risky to float through the payrolls data and ADP on Wednesday suggests NFP will be quite strong which is not good news for mortgage rates.