May 102016

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By G. Steven Bray

Mortgage rates are at 3-year lows, so should you be locking your rate, or are rates going even lower? The answer is not as straight-forward as it would seem.

Rates have been riding a range all year. Currently, we’re at the lower end of that range, which suggests that locking your rate makes sense. However, unless you’re closing soon, it may make no difference. It’s certainly possible rates will bounce towards the other end of the range soon, but I think it’s also likely they’ll revisit their current lows.

This is what I’m watching. Bond markets seem to be mostly ignoring economic data. The jobs report last Fri was disappointingly low, and markets yawned. This week’s big report is retail sales on Fri. I doubt markets will care. Markets seem convinced the Fed is backtracking on its move to raise interest rates, and one justification for that would be a weakening economy. Thus, it doesn’t matter what the reports say. The Fed hitting the pause button must signify weakness. That suggests that rates probably won’t leave the range anytime soon.

The only economic data that I think still bears watching is inflation. Core price and wage inflation are still very low. However, should the slope increase for a couple of months, I think it would catch the Fed’s attention.

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