Mortgage Rates Down Following Economic Reports

Mortgage rates continue to tick higher in 2018, but today went down in a turbulent market. This morning, we got several moderate-to-important reports to digest, and their results presented a mixed bag where mortgage rates are concerned. In addition, Fed Chair Jerome Powell’s testimony today before Congress has the markets weighing on every word.

Where Are Mortgage Rates Going?                     

>>> Rates are showing little movement in a positive direction

A few days ago, an optimistic testimony on Capitol Hill from Federal Reserve Chairman Jerome Powell sent Treasury yields higher as Powell stated his outlook for the economy has strengthened since December. The 10-year Treasury (the best market indicator of where mortgage rates are going) has been on a tear in 2018 and increasing for 8 consecutive weeks. The 30-year fixed mortgage rate averaged 4.33 percent in February, up 30 basis points from the previous month and the highest monthly average since April of 2014.

Historically, when mortgage rates surge, housing swoons. But we think strength in the economy and pent up housing demand should allow U.S. housing markets to post modest growth this year even with higher mortgage rates. We really must wait for housing markets to heat up in spring, but early indications are that housing demand remains robust to these rate increases. The MBA reported in their latest weekly applications survey that home purchase mortgage originations were up 3 percent from a year ago.

In a rising rate environment, the decision to lock or float becomes complicated. Obviously, if you know rates are rising, you want to lock in as soon as possible. However, the longer you lock, the higher your upfront costs. If you are weeks away from closing on your mortgage, that's something to consider. On the flip side, if a higher rate would wipe out your mortgage approval, you will probably want to lock in even if it costs more.

Rate/Float Recommendation           

>>> Lock in a rate soon before they rise significantly

Mortgage rates have moved higher for two months. The average rate on a 30-year fixed has shot up forty-eight basis points since the first survey in January. Looking ahead to the rest of the year, the consensus is that mortgage rates will continue to rise, potentially reaching past 5%. In the current rate environment, opting to float could mean that you will get a higher mortgage rate down the road. If that is something you can stomach, then by all means do it, but just understand there is a clear risk involved. Remember – Pigs Get Fat – Hogs Get Slaughtered!