Mortgage Rates Rebounded Today

Mortgage rates had a nice rebound today after markets erupted yesterday on the FOMC minutes that pushed the rate hike closer than what markets believed prior to recent comments from Fed officials - and the fact that the minutes clearly indicated the Fed is thinking a June or July rate increase. Until late last week and this week, the consensus view was no increase until September at the earliest with many saying no increase this year at all. It is normal for markets to react wildly when a major view or unexpected news occurs. Today after a few hours’ markets returned to calm, although a rate increase has moved up from a slim chance last week to nearly a 35% chance in June, and a 60% chance in July in the FF futures markets.

Still, even with the growing sentiment changed it is not a sure thing. Based on economic performance between now and the June meeting (or the July meeting). What most Fed officials are thinking now is that the economic growth should be enough to justify a rate hike. Quick to remind though, the Fed’s forecasting ability is questionable the last three years. Over the last three years the quarterly economic forecasts issued by the Fed, the Fed has lowered its growth estimates. Today NY Fed Pres. Wm. Dudley said his growth outlook is on track that would allow the Fed to move. A month ago Dudley was less enthused about an increase, now he believes its time. There has been an extremely interesting shift across the Fed spectrum of officials.

Tomorrow the April existing home sales will be out at 9:00AM.  Housing starts are always important, but even more so now with the Fed’s recent comments and the minutes. Strong sales will add to the rate increase view.  This morning April leading economic indicators were stronger than thought as it had the highest increase in over a year.

In summary, the bond markets took a deep breath today, as Fed speakers mitigated yesterday's minutes with some less alarming comments. Pricing was not as bad as I had assumed, but is does not mean we are back to falling rates - but at least the bleeding has stopped. I am still going to hold my stance that if you are going to close in the next 30 days, lock them up as floating may seem to be an option, but only if you can handle the risks of being wrong.