Last week mortgage rates increased again. Treasuries attempted to rally mid-week, but the rally fizzled, and bonds sold off on Thursday and Friday, driving yields higher. Mortgage rates followed suit. Freddie Mac’s Primary Mortgage Market Survey showed the average rate on a 30-year fixed-rate mortgage rising to 4.13% with 0.5 points. Rates are right around 2-year highs.
To put this in perspective, rates were flirting with all-time lows following the Brexit vote this summer. Freddie Mac’s PMMS showed 30-year rates between 3.43-3.55% with 0.5-0.6 points from early July right up until the election. Rates are up 60ish basis points over the last five weeks. The only equivalent spike in recent memory occurred in the wake of the “taper tantrum” of May-June 2013.
Will the bond markets rebound and will we see rates dip? Or will rates continue on their upward trajectory this week? More after the jump.
Click here to get today’s latest mortgage rates.
The rate outlook:
The main events that are likely to impact rates next week are the Treasury auctions that happen on Monday and Tuesday, and then the Fed meeting and press conference that occurs on Wednesday.
At the risk of stating the obvious, the auctions will show us what type of appetite investors have for bonds at current yield levels. This is particularly notable, because these are the first long-duration Treasury auctions following the election and the unveiling of Trump’s economic plan, cabinet, etc. Going back through the calendar, it looks like the last 10-year auction was actually on election day. I won’t pretend to have any particular insight into what the results of the auction may be, but it will be interesting to see how foreign and domestic demand shakes out in light of the Fed and Trump. If the demand is not there, yields will rise, as will rates.
Which brings us to the Fed. Pretty much everyone expects the Fed to hike on Wednesday. The price of Fed Fund futures imply a 95% probability of a hike. The more important things this Wednesday will be the tone that the Fed takes with regard to future hikes, what Yellen says in the post-meeting press conference, and how the economic projections are updated. If Trump does manage to get a massive infrastructure improvement program passed while cutting taxes, the Fed may see the need to increase the pace of rate hikes to get ahead of potential inflation. If they communicate something along those lines, it would follow that the market would move in front of the Fed. If this is the case, we’ll continue to see rates increase in the coming weeks.
The markets are still volatile, and still dealing with the reality of President Trump. This week’s auctions and communications from the Fed should be telling. I don’t have any great way of guessing which way things may go, but there is certainly risk that rates will rise higher this week. I think the best case-scenario from a rate perspective is that things stay more or less the same. I think the chances that rates drop in any significant way are slim, and that it is probably a coin-toss between rates rising and staying at current levels.
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from Total Mortgage Underwritings Blog http://ift.tt/2hoJ053
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