Rate update: The factors pushing mortgage rates higher

 Interest Rates, Residential Mortgage  Comments Off on Rate update: The factors pushing mortgage rates higher
Apr 262018

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

By G. Steven Bray

Rates have risen to their highest level in 4 years. The 30-year fixed rate is toying with 5% again. So, is the magic over for the housing market?

That may be a tad melodramatic. The truth is we have several factors putting upward pressure on rates right now, and market sentiment seems to line up with those factors. The truth also is even at 5% rates still are historically low. While higher rates definitely impact housing affordability, recent history shows a robust housing market can be compatible with still higher rates than today.

So, what are the chances we see lower rates again? First, let’s review the factors pushing rates up.

– The government is borrowing more, and it finances that borrowing by selling bonds. Basic economics say more supply usually leads to lower prices, which for bonds means higher rates.

– The Federal Reserve is buying fewer bonds. Again, it’s basic economics. Less demand tends to result in higher rates.

– The Fed is hiking rates. While the Fed only directly affects short-term interest rates, its actions often put pressure on longer term rates.

– Finally, economic growth remains robust. While inflation still appears to be contained, history says economic growth can lead to inflation, which pushes rates higher.

It’s interesting the effect higher rates have had on what I’ll call market psyche. Most talking heads have been bemoaning the 10y Treasury bond rate breaching 3% again. I’ve seen several articles predicting doom and gloom ahead. The scary thing about this is that such talk, if it becomes prevelant, can become a self-fulfilling prophecy. I don’t see that yet. Consumer and business sentiment remains very high, but it will be important to watch that data going forward.

So, in the short term, I don’t see any reason to expect lower rates absent some extraordinary event that none of us wants. The course of rates later in the year likely will depend on how markets react to today’s elevated rates.

Rate update: Rates on inflation watch

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates on inflation watch
Apr 102018

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

By G. Steven Bray

Mortgage rates stayed in their very narrow range last week as the bond market weathered the wild swings in the stock market. Interest rates often benefit from big down days in equities, but the gyrations have become so routine that they’ve muted flight to quality bond buying that would benefit rates.

So, rates have budged little in about 2 months. What could change that?

We were watching last week’s jobs report as a potential catalyst. The jobs number was surprisingly weak, and wage growth was inline with expectations. Rates barely budged, probably because the weakness was attributed to weather.

This week we have two potential sources for upset, both on Wed. First is the Consumer Price Index. Markets have been poised for an uptick in inflation for months, which has kept some upward pressure on rates. Recent CPI reports have continued to show minimal inflation, but markets are anxious. A higher-than-expected reading on Wed could shoot rates higher and quickly.

The second potential source is the release of the Federal Reserve meeting minutes. The Fed verified that it’s on course to raise rates two more times this year, but some Fed watchers are convinced the Fed is secretly thinking three times. While the short-term rates the Fed controls don’t directly affect mortgage rates, the reason the Fed would add a rate hike – higher inflation or more robust economic growth – would add some lift to rates. Markets will be exercising their secret decoder rings to see if they can glean some hidden message in the minutes.

The risk for floating your rate is greatest Wed morning. If we don’t get any surprises, rates are liable to stay range-bound for the rest of the week.

Rate update: Higher wages mean higher rates

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Higher wages mean higher rates
Apr 032018

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

By G. Steven Bray

It’s another jobs report week, and this one comes at an interesting time for mortgage rates. Bonds rallied at the end of Mar pushing rates down to their lowest levels in over a month, but the gains felt almost too good to be true.

Two factors seem to be supporting higher rates right now. First, we have a fairly robust economy. Job growth continues and, in fact, was quite strong last month. GDP growth looks like it will hit 3% this year. While housing data has been underwhelming, it likely is due to external factors, namely limited numbers of existing homes for sale and various impediments to building new homes.

The second factor concerns inflation. We’ve discussed this many times, and we also have discussed that so far most inflation reports continue to show an absence of significant inflation. But investors keep looking and looking.

And that brings us to the jobs report. Expectations are for continued strong job growth, so that shouldn’t stir interest rates much. However, I suspect investors will be keenly interested in another part of the report: wage growth. Remember that Jan’s report of higher wages caused rates to leap. Some of the air left that balloon last month when wages fell back again. So, which will it be this month?

I’d say the odds don’t favor floating your rate through the week. A higher wage growth reading is likely to cause more damage than you could gain from a lower reading.