Mortgage Rates Have A Surprise Start to the Week

Mortgage rates fell somewhat today as there was a bit of a surprise with the strong rally in the bond and mortgage markets. Still the 10yr in a tight range chopping back and forth with no continuity from day to day. Today the news is that hedge funds had loaded up on trades that expected US interest rates to continue to increase. That rate has generally stayed within narrow ranges and haven’t continued to move higher, and that money managers were buying up 5yr notes to spread portfolio risks are forcing those hedge funds to cover and interest rates to slide lower. Not something that was anticipated.  

Also, today the stock market was under a little pressure with investors spooked a little on the Trump presidency. Got to have an excuse or reason for market movements; stocks just got out ahead of reality since the election last November. Now taking a breath to see what he will do and what the outcome of his cabinet positions and other key officials are going to be. Today, the first meeting Trump had was with key business leaders querying what businesses need to increase employment, wages, and profits. The wider picture so far appears positive for the equity markets but valuations are not up the levels of many stocks. Investors now want details on Trump’s plans - should have thought about that in December.  

There were no economic releases today but tomorrow December existing home sales will be reported, and are expecting a decline in numbers. Redfin said last week that real estate agents expected rising interest rates to affect the type of home prospective purchasers were shopping for. Nearly 50% of those surveyed said that a rate increase to 5% in the next year would cause buyers to look for a lower priced property, Redfin reported last week. Redfin posed the question in early December, and found that 2.6% of them would cancel their search altogether if rates went above 4%. Among the agents that responded, 16% said that potential sellers with locked-in low rates would hold on to their current home to keep their cheaper mortgage. Additionally, 45% of agents surveyed said that sellers will still move, but will rent their previous home rather than sell it. On a more optimistic note - 44% of agents said now is a good time to buy, which is the highest level reported all year and just one percentage point down from a year ago. (With interest rates expected to increase this year first time buyers will likely be unable to afford to buy and with low inventories not much is available.)

The dollar still declining in a technical correction after the swift increase since December. Trump started the move last week when he said he wanted a weaker currency now, while Treasury (Mnuchin) echoed the Treasury’s mantra that a strong dollar is best.

In summary, starting the week off with a great rally following last week’s selling is a breath of fresh air.  We have found ourselves right in the middle of the previous range.  Some may be tempted to ride this momentum further, I would say it is wise to lock in any gains we see.  Until a definite confirmation breaking below the range has occurred, floating can be a risk.  If you are closing in the next 15-days, lock it up.