Mortgage Rates Seem to Hit the Bottom Range

Mortgage rates were unchanged today.  For the past several days, it seems that the rates were in limbo as they have since held onto this bottom range since the election, even though they were a bit lower a few weeks ago.  Current levels have acted as a line in the sand that divides the year's lowest rates from everything else. 

First thing this morning we got the advance Q1 GDP, expected by most economists up 1.1%, but as reported +0.7%. We also got Q1 employment cost index came out better than anticipated.  The GDP and employment cost data suggest a little increase in inflation with labor costs increasing more than forecasts and the GDP price index higher than in Q4 2016. Countering that real consumer spending was lower than forecasts.  Consumer spending is by far the worst showing since no change in fourth-quarter 2009. Weakness in consumer spending is strongly associated with the recession but not in other data in the report. At a 13.7% pace, residential investment posted a second straight very strong quarter. And in a rare show of strength, nonresidential investment, which has been subdued, jumped at a 9.4% with both structures and equipment showing unusual strength. A surge in mining investment is a standout of the report.

Market fears are dissipating quickly now.   Unless stocks come under prolonged pressure or geo-political fears return, the path for interest rates is to move higher.  That said, I am not expecting a big increase in rates. Presently investors and traders are enamored with the Trump tax plan blueprint released Wednesday. As time moves forward, it should become clear that those tax cuts will not likely be easy or quick to move through Congress.

In summary, bond markets parlayed weak 1st quarter GDP growth into minor gains this week.  We seem to have hit the floor and are waiting to see what the Fed says next week, waiting to see if Trump's economic stimulus and tax reform proposals will pass, if tensions in Korea wax or wane, and if France's election will produce a predictable result.  Until the answer to one or more of these is clear, I am guessing markets will, well, continue waiting.  Have a great weekend!