Mortgage Rates Under Pressure

Mortgage rates remained under pressure today, moving right back to the highest levels in more than 4 months after only a few days of recovery.  This might not have been readily apparent on most of the day's rate quotes because things did not deteriorate meaningfully until late in the afternoon.

There are “plausible ways” that keeping the economy hot for a while could fix some of the damage caused to growth trends by the Great Recession. Janet Yellen saying in her Boston speech. “Increased business sales would almost certainly raise the productive capacity of the economy by encouraging additional capital spending.” …. “the influence of labor market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis.” …. “If we assume that hysteresis is in fact present to some degree after deep recessions, the natural next question is to ask whether it might be possible to reverse these adverse supply-side effects by temporarily running a ‘high-pressure economy,’ with robust aggregate demand and a tight labor market.” The Fed leader effectively expressed sympathy for the idea of keeping short-term interest rates low to let the economy gather steam and reverse some of the long-run debilitating effects of the slow recovery, such as low labor-force participation and business investment. That implied very gradual rate increases in the months ahead.

Interest rates at the long were moved higher on her comments - the concern is that if the Fed were to keep rates low for much longer inflation may get a grip. When inflation gets a toe hold it is difficult to rein it in. Interest rates were higher all session and stock indexes stronger but after her speech the 10yr note yield jumped to 1.80% and stock indexes fell from their high levels. Regardless of her remarks, markets still believe a December increase is likely. The 10yr auction on Wednesday was at 1.79%, lower than where it closed today after dipping to 1.74% yesterday. The dollar’s strength recently is reducing foreign buying of treasuries - China now a seller of US treasuries, Japan also selling.

In summary, these sorts of clearly-defined uptrends provide higher-than-normal motivation to favor locking vs floating.  Indeed, the reward for successfully timing a lock is quite low at the moment.  Most banks will not be quick to improve their pricing until they see a more sustained bounce back toward lower rates in the bond market.