May 312016

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By G. Steven Bray

Mortgage rates remained on the range again last week, but that may be about to change, at least temporarily. Fed governors spooked markets a couple weeks ago by suggesting that a Jun rate hike was in the cards, but it didn’t take long for an anxious calm to resume.

The Fed meets Jun 14th and 15th, and a rate hike is possible, but I don’t think it’s likely. The Fed has been watching and reacting this year to economic events overseas, and we’ve got a big one coming up. Great Britain votes on 6/23 whether it will remain in the European Union. The “remain” side is winning in polls, but by a slim margin. Some economists are predicting economic turmoil if the “leave” side wins. I suspect the chances of that will keep the Fed on hold in Jun.

However, that doesn’t mean markets will take a nap until then. This week is a jobs report week. Remember that last month’s report was disappointing, and markets have that baked into their current mood. Given the anxiousness, I think a strong report could result is a quick rate spike.

But remember the Fed doesn’t control mortgage rates directly. In fact, it controls very short-term rates. So, even if we see a spike, I think it will be short-lived unless we see additional stronger economic data. So far this year, housing is about the only area of strength.

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