Mortgage Rates Taking a Break - Moving Sideways

Mortgage rates are moving sideways so far today as we have a better start this morning after days of continual selling. Nothing significant, just a rest from selling led somewhat by the November housing starts and permits. Since September, starts and permits have been unpredictable, original reports subject to big revisions, nevertheless the report was weak and surprised the housing market bullishness that was driven by the NAHB housing market index yesterday that was the strongest since 2005 and the biggest monthly increase in 20 years. Starts and permits have been struggling with year-on-year starts down 6.9% and year-on-year permits down 6.6%. On the plus side, 15.4% gain in housing completions following a 6.3% increase in October.

This morning the dollar has cooled from the recent major increase against most global currencies. The quiet also helping the bond markets that were also in major free-falls in prices. Since Wednesday’s FOMC meeting markets have increased beliefs the Fed will be more aggressive in increasing rates than was previously thought. For all the ink and comments about the future of interest rates and the run-up in the equity markets that the Trump victory has generated there isn’t any substantial fundamental reality behind any of it yet. Markets believe a business man and not a politician will change the eight-year economic malaise, revive growth, lower taxes, increase wages and lead to inflation. Probably a good bet, at least it is a whole different political world ahead. Our issue isn’t the direction of interest rates or the strong rally in equities; it is the magnitude of the moves in the compressed period - both over-extended and subject to a reality check at these present levels of stock indexes.

Most of the comments about the FOMC meeting and the belief that the Fed will make three increases in 2017 are the more aggressive Fed in 2017. That is likely given the present state of belief about the Trump presidency, but we are not completely out on that limb, still remember Dec 2015 when the Fed moved the FF rate higher for the first time in 10 years. At the December meeting and in the aftermath Fed officials said the Fed would increase the rate four times this year - markets got one. Here is the question bothering me; the Fed’s own projections, regardless of the accuracy, show no growth over 2.0% until 2019 and no increase above 2.0% inflation also until 2019 - should markets believe the Fed now?

So far today, we have seen some of the downward turn given back as of 11:00AM, with MBS a positive 37BPS and the 10yr is at 2.58%.  I still say to lock as the future is so volatile, I cannot at all predict where the rates will go.