Friday, February 26, 2016 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 -
Mortgage rates moved higher today and at a quicker pace - bringing averages up to the highest levels in at least a week. Q4 GDP started everything off today as it was better than expected. January personal spending and income also were better that forecasts. The stronger data hit the bond and mortgage markets hard today. Treasury sold $28B of 7yr notes this morning after delaying it from yesterday. I had expected a good auction after Wednesday's good 5yr auction, but as it turned out, it was a poor auction.
More rhetoric today from the Fed presidents as the markets are increasingly becoming more frustrated by the Fed's comments made in December that were less about data dependent and more a time table for higher rates. Fed officials said then that they would increase rates in 2016 by 100BPS, that translated into 4 moves this year. Digesting the comments took a couple of weeks but as soon as the holidays were over the lid blew off the equity markets. Investors recognizing that stocks were over-valued and with the Fed believing it could raise interest rates while other central banks were cutting rates the markets convulsed into extreme volatility. Interest rates declined, stocks declined, crude oil declined and the economic outlook weakened. All that is behind markets now - the Fed got the message, no more specific announcements on rate increases and now reiterating its data dependency.
Crude oil slightly lower today but started higher then retreated into the weekend. The stocks started better but also slipped. Recent comments from oil producers conflicting, Saudis saying they won't cut production, other OPEC countries and Russia still talking about it. Iran and Iraq not likely to cut back and may even increase output; both countries need cash in the form of dollars.
With all this, mortgage rates remain close to their recent lows, and the 10yr note yield also not far off its lows. Bonds and equities resting this week after a month of high uncertainty and volatility. Recent data this week was generally favorable except January new home sales. However, we need to note that new orders are growing but at the slowest rate in six years. Another weakness was with the consumer confidence index dropping to the lowest since July last year. Today inflation concerns are back on the table - the core rate of PCE, Yellen's favorite inflation gauge. Next week is employment week.
In summary, the biggest questions are always about the future when it comes to mortgage rates. It is very easy to discuss the fact that we are just over a quarter point away from all-time lows and that rates edged up this week. If those factoids make you feel like locking, go with that instinct. It's much harder to say whether rates will continue to head higher and at what sort of pace. One thing is for sure - we are definitely no longer in the same sort of trend that existed from December 31st through February 11th. During that time, rates never went higher for more than 2 days in a row, and they never ended a week higher than the previous week.
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