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Bart Castelli

Mortgage Rates Reacted in a Positive Manner

Saturday, November 14, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 - Message

Mortgage rates reacted to weak economic data as well as falling prices in stocks and commodities. While it's not a hard and fast rule, when there is enough downward movement in things like stocks and oil, or when the economic data is weak enough, bond markets tend to benefit. The 10yr note yield declined this week 6BPS to 2.27% after the wild increase last Friday on what is likely an anomaly with the strong increases in jobs. MBS prices this week on the 3.5 FNMA coupon price dropped 15 bps this week. I do not expect the November employment report to be as strong as October but also the Fed is determined to increase the FF rate at the December meeting. Taking all of the Fedspeak this week into one sentence, the Fed wants to increase rates. The worrying point continues though, does the Fed actually know what it is doing?

All that said, markets still not sure about what the Fed can do - markets know what the Fed wants to do but not what is possible. The idea of full employment based on headlines is the benchmark for the Fed, does not matter that incomes are lower now than at any time in the last 50 years, except of course incomes of the few, the few that the media idolizes.

Here it is in a nut shell - the Fed wants to increase the FF rate by 0.25%, markets are acting like it is the worst thing ever. Why the fear? Because under all of the domestic and global news and constant comments from central bankers, the reality is the US economy is weaker than the headline data implies, consumer spending is meager, especially compared to the idea that low gasoline prices would put $100 million in more discretionary spending (think Oct retail sales this morning), the global situation is worse than the data and money managers admit. Not sure how long this will last but not likely as long as investors and markets believe presently.

In summary, positive movement has come back to the rates. Even though no one cannot confirm a looming rally, many of us in our industry are hoping at least we have seen the near term top for rates for the short term. I continue to expect more improvement in the bond and mortgage markets, but not much and the path will be choppy. Overall the technicals on the wider perspective is still bearish, the short term though is looking oversold and some improvements in prices is likely. I am not anti-float now for new loans, IFthe borrower understands there's probably a 50/50 chance of losses versus gains. Those not willing to accept risk could certainly do worse than locking now.

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