Rate update: Will mortgage rate tranquility last?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Will mortgage rate tranquility last?
Sep 282016
 

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By G. Steven Bray

As expected, the Federal Reserve didn’t change short term interest rates last week, but somewhat surprisingly, interest rates fell a little. Maybe markets were more nervous than we thought about the Fed meeting. Fed head Yellen’s comments at the post-meeting news conference didn’t hurt. She seemed to make it clear most Fed members are still reluctant to raise rates. However, Yellen did signal that a hike before the end of the year, probably in Dec, is a real possibility.

The rate drop surprised me because so many so-called market experts are predicting higher rates. Despite those predictions, investors bought bonds, pushing rates down.

So, what does that do for market momentum? For now, it looks like it pretty much sapped it. While rates did drop a little, they simply moved to the lower end of the recent range, and they’re looking comfortable again.

A couple things on the near horizon could disrupt the tranquility. The first is next week’s jobs report. A report that misses expectations either way could give rates a nudge. The second is the resurgence of inflation, especially wage inflation. I think recent economic reports have been equivocal. A report that shows a definite rise could move rates up quickly.

Rate update: No more money from heaven?

 Interest Rates, Residential Mortgage  Comments Off on Rate update: No more money from heaven?
Sep 142016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

It seems market sentiment has changed, which could be bad news for interest rates in the near term.

The quick jump in interest rates over the past few days was in reaction to investors’ fears that Central Bank printing presses might shut down. The trouble started last Thurs after the European Central Bank meeting. At a press conference, its president suggested through omission the Bank might stop inflating its balance sheet next year. Alarm bells sounded. No more money raining down from heaven. And the selling began.

Stocks and bonds have been selling off ever since as markets adjust to the idea that easy money might not be a permanent condition. Of course, markets are ignoring that the Fed continues to reinvest billions of dollars into Treasury and mortgage bonds, that Europe and Japan have official negative interest rate policies, and on and on.

So, rates are up a little. They still haven’t broken out of the range they’ve occupied all year. In fact, we’re in the middle of it. To break the range, I suspect we have to see stronger US economic performance. To that end, we have two significant data points this week: retail sales and inflation. Of the two, I think inflation could have the larger impact if the report shows a sizable increase. One reason the Fed has been reluctant to raise short term rates is the near absence of generalized inflation. If inflation should start to bubble, look for the Fed to try to get in front of it with a series of rate hikes. While Fed rates don’t directly affect mortgage rates, its change in policy stance will reinforce the market’s change in sentiment.

Rate update: Back on the range again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Back on the range again
Sep 062016
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last Fri’s jobs report was supposed to be a defining event. Solid job gains were supposed to give the Fed the green light to raise short-term interest rates again in a couple weeks. I guess someone forgot to tell the employers. Instead, we got a mediocre jobs report and an excuse for the Fed to equivocate some more.

The actual jobs created were 151k. By itself, even this mediocre report could have given the Fed cover for raising rates given that Fed governor Lockhart said 150k would be good enough. However, the report was bookended by important reads on, first, manufacturing and, today, the service sector of the economy. Both reports were much weaker than expected and, I suspect, put a rate hike back on hold.

So, where does that leave us? It looks like we’ll be riding the range a while longer. The European Central Bank meets this week, but I think it’s unlikely to stir markets much. The next significant event is the Fed meeting in two weeks, and absent something unexpected, I expect rates will remain in a holding pattern until we get closer to the meeting.