Mortgage Rates Hit Two Week Lows

Mortgage rates moved to their lowest levels in the last two weeks as both financial markets (and myself) roared back to life after the winter break.  In this age of ever-increasing automation and digital connectivity, it would be easy to assume that financial markets continue to hum along in the background even as the rest of the world takes some time off during the holidays.  The truth is that financial markets are greatly affected by the Christmas/New Year’s holiday season and that is readily apparent in today's mortgage rates.

Not a pleasant way to start the new year as stocks hit hard today on China’s decline in manufacturing. That’s the headline but not the whole story - the Fed told markets at the December FOMC meeting it expects to increase the FF rate to 1.40% by the end of the year. Defining the proposed increases as gradual but at 0.25% increases that equates to an increase about every two months. The outlook for growth this year is still at 2.0% to 2.5% but if China’s economy slips to growth less than what the Chinese government is saying (7.0% growth this year) as most expect, the US growth will climb a real wall of worry. China somewhat like the Fed, is in wishful thinking more about growth. US growth this year is questionable even in the face of all of the bullish forecasts. The DJIA and S&P were lower in 2015 than 2014 with very low rates and the Fed’s support - no Fed help this year though.

China may have gotten the market headline but what has more dire long term consequences for the US is the end of diplomatic relations between Saudi Arabia and Iran, the two powers in the mid-east.  So far there is run to safety in US treasuries. The selling in US stocks so far is only a one-day event. The 10yr did not even try 2.20% today, 2.21% was the lowest yield seen early this morning before it increased to 2.24%.

Tomorrow the only data is December auto and truck sales.  This is employment week, global events and the key data this week will keep markets edgy. Expect high levels of volatility in equities this week but we are not expecting much movement in bond or mortgage rates. US bond and mortgage markets remain technically bearish. There was no significant movement in either market today. US stocks followed the world lower but no panic; many money managers were expecting selling this week, although not to today’s extent. Tomorrow is critical - likely stock indexes will improve but if more strong selling continues this week it will support US interest rates. Until the 10yr breaks and holds below 2.20% it is best to keep flat, no floating.

In summary, nice little rally today thanks to a global sell off of stocks that started with very weak manufacturing data out of China.   If you floated over the long weekend, you have been rewarded.  With today's gains, it would be wise to consider locking especially if you are within 30 days of funding.   The trend still is not our friend, so this could turn around very quickly.