Mortgage Rates Trying to Head Lower

Mortgage rates should have fallen a little bit more due to the underlying bond markets.  Part of that must do with the timing of bond market swings over the past few days. Although I cannot state what bond markets will do tomorrow, the fact that mortgage rates are heading into the day with a small advantage is useful knowledge. 

Trouble in the Republican camp? Looks like that with the failure to pass a replacement for the ACA and added to that the next plan was to vote on simply repealing the ACA, that too went up in smoke this afternoon when three Republicans announced they would vote against repeal. Can the Republicans govern? The question is gaining momentum. Tax cuts coming? Not looking any more positive than the health care failure. Republicans are in control based on the numbers but within the party there is chaos and division. The Senate finance committee held its first hearing of the year on tax cuts the subject and House Republicans unveiled a budget proposal. Given what has happened recently it is very doubtful that any meaningful tax cuts will happen., and infrastructure spending The Wall are both doubtful - yet nothing hurts stock indexes - yet.

The bond market improved today, the 10yr at 2.26% did break its technical resistance but the enthusiasm appears to be subdued. No inflation is helpful for fixed income and the Fed’s desire to begin to taper its balance sheet and increase the FF rate again in December is for the moment questionable. This morning the July NAHB housing market index dropped to its lowest level since prior to the November election.

A lot of housing market stats, CoreLogic, monthly sales, starts and permits, mortgage applications, and the now questionable NAHB data. Builder confidence is weakening after stone-walling with its monthly data for the last few months. The blame of higher lumber costs is feeble at best - lumber is going up but it is not the price of a home that shuts down buyer traffic, its lack of interest.  

Who wants the US dollar?  Few if the decline is any indication. The dollar is in almost free-fall recently.  A weaker dollar a few months ago was supportive for US assets, foreign investment was strong but now foreign investors are worrying that investing the dollar may be detrimental if the dollar continues to weaken. US politics in turmoil, the Trump Administration appears to be a ship without a rudder.

Looking for much lower rates is dependent on two things, either a major equity market correction or Black swan event occurring. The DJIA weaker to but its inconsequential at these lofty levels - the other indexes held with minor improvements.  Today the DJIA was down more than 100 points.  Given the technical improvements today, I might be changing my position again on locking to 15 days, but we need to see what happens early in the morning.

In summary, bonds have been able to break the floor that has held steady for quite some time around 2.30 on the 10yr note.   Early Thursday, we get news from the ECB.  Any confirmation of tapering sooner rather than later will send yields rising quickly.  I hate to say that I would not be surprised to see bonds pull back some tomorrow as investors await Thursday.  So, check in tomorrow morning, and if there is any move up, lock.