After increasing for the first two weeks of October, mortgage rates were flat last week. According to Freddie Mac’s Primary Mortgage Market Survey, the average rate on a 30-year fixed-rate mortgage started the month at 3.42% with 0.5 points, and came in last week at 3.52% with 0.5 points. The Freddie Mac report tends to lag actual market conditions because of the nature of the survey – the responses are collected early in the week and the results are released on Thursday – but the trend is clear. Yields on 10-year Treasuries fell slightly last week, dropping from about 1.77% at the beginning of the week to about 1.74% this morning.
None of the data that we saw last week was particularly inspiring, and there isn’t any data of great significance due out this week. I think we are very likely to sit in a holding pattern until the October jobs report comes out on November 4th, and more likely until the election on November 8th.
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The rate outlook:
There were few significant developments last week. Inflation measures were subdued, most of the other data that was published came in at or above expectations. The stage would likely be set for a November rate hike from the Fed were it not for the election. Speaking of the election, the presidential debates are mercifully over, and barring an upset, it looks likely that Hillary Clinton will be our next President. Politics aside, a Clinton win should reassure the markets that things will continue business as usual as compared to the extreme uncertainty that would accompany a Trump presidency. In the event that Trump does not accept the results of the election, Katy bar the door. I have no idea what would happen there, and will not hazard a guess.
After the election is over, assuming everything goes smoothly, the focus will shift to the economic data and the possibility of a December rate hike. The implied probability of a rate hike in December based on Fed Fund futures prices is close to 75%. There is a meeting in November, but due to the proximity to the election, a rate hike is effectively off the table – the implied probability of a hike is only about 10%. Given the prevailing sentiment that a rate hike will occur, the expectation should be baked into bond prices in advance of the hike. Even with a hike, I don’t foresee any extreme movement.
Since bottoming out after the Brexit vote in mid-June, rates have slowly but surely crept upward. I think this trend will continue through the end of the year. I doubt we’ll see any dramatic movement, rather a gradual climb. One could easily concoct scenarios where we see a dramatic shift in one direction or the other (e.g. surprise tightening of monetary policy from the European Central Bank, civil unrest in the event of a contested election in the U.S., etc.), but I don’t think those scenarios are especially likely.
If you are looking for a mortgage, I think it is more probably than not that rates slowly climb in the coming months. I would recommend trying to lock in a rate sooner rather than later.
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from Total Mortgage Underwritings Blog http://ift.tt/2egIyVm
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