Last updated: March 17 2016
Float if closing in 7 days: Rates may be heading down
Float if closing in 15 days: Rates may be heading down
Float if closing in 30 days: Rates may be heading down
Judging from market trends at 10:00am (ET), it looks likely mortgage rates will fall today, possibly significantly. However, it’s important to recognize such early trends can change quickly, as they have done on a number of recent occasions, including yesterday. There are no guarantees in the current, unpredictably volatile environment. If we were buying a home in March or April, we would cautiously float our rate. Read on for more.
There were four releases of important domestic economic data published earlier this morning, the first two of which are the ones that most frequently move markets and mortgage rates:
- Weekly jobless claims – The number of new claims for unemployment insurance during the week ending March 11 was 265,000. It was 259,000 over the previous seven-day period, but, prior to today’s announcement, analysts had expected an even bigger rise, with their consensus forecast being 270,000, according to Econoday. Unemployment data have been exceptionally good of late, and today’s number is no exception.
- Philadelphia Fed Business Outlook Survey for March – This survey of manufacturers in the Philadelphia Federal Reserve’s district plunged into negative territory late last summer, but began recovering in December. The index came in today at +12.4, compared with -2.8 in February. The analysts’ consensus forecast for this morning’s number was -1.4, which means Philadelphia has knocked the ball out of the park..
- Current account for the fourth quarter of 2015 – The balance in international trade stood at -$125.3 billion in the last quarter of last year. It had been $129.9 billion (revised) in the third quarter, and the analysts’ consensus forecast had been for a narrowing in the gap to -$115 billion. So this measure has improved, but not as much as analysts had hoped.
- February’s leading indicators – This index of a range of indicators that might suggest future economic performance came in up +0.1 percent month over month in February. It had declined by -0.2 percent in January. The analysts consensus forecast had been +0.2 percent. So this is disappointing to the smallest possible extent that it’s possible to be disappointed.
Analysts’ forecasts are important because markets often trade ahead of actual results based on those. That means good or bad numbers that are unexpected can have a greater impact than actual figures. Good news tends to push up mortgage rates, and bad usually makes them fall.
There is an auction of 10-year Treasury Inflation-Protected Securities (TIPS) scheduled for 1:00pm (ET). That too has the potential to move mortgage rates, depending on the play of supply and demand.
Major stock markets in Europe and Asia were mixed earlier, with all down a little or more than a little, except those in China and Hong Kong, which were up. About 30 minutes after opening, the Dow Jones industrial average was unchanged on yesterday’s close. The oil price then was up at $39.21/barrel, which compares with $37.36/barrel at roughly the same time yesterday. As recently as February 10, it was below $30/barrel.
By about 10:00am (ET), yields on 10-year U.S. Treasury bonds, which are usually closely tied to mortgage rates, were down by a significant amount. While those yield trends on those bonds at that time of the morning frequently turn out to be accurate predictors of the direction of travel for the day’s mortgage rates, they slow, accelerate or reverse sufficiently often that they can’t be relied upon as a basis for making important financial decisions. During unstable times, such as these, they are even less reliable, and we’ve seen the relationship between bond yields and mortgage rates grow more elastic in 2016 than previously.
Recent Mortgage Rates
Average rates for 30-year fixed-rate mortgages (FRMs) fell by 2 basis points (a basis point is one-hundredth of 1 percent) yesterday, according to Mortgage News Daily. That was the opposite of the rise forecast here, but readers will recall that the possibility of a fall was flagged up. Yields on 10-year Treasury bonds, which had been rising, plunged 6 basis points within minutes of the Federal Reserve’s statement yesterday afternoon, and then recovered a little.
The average rate nationwide for a 30-year FRM during the week ending March 17 was 3.73 percent with an average 0.5 point, according to Freddie Mac’s latest weekly survey, published this morning. It was 3.68 percent during the week ending March 10, and 3.64 percent seven days before that. This time last year, the average 30-year FRM came in at 3.78 percent.
In a statement accompanying today’s data, Freddie Mac chief economist Sean Becketti noted:
Treasury yields increased heading into this week’s FOMC [Federal Open Markets Committee – the Fed body that determines its rates] meeting, partially in response to modestly higher inflation readings. 30-year mortgage rates kept pace, rising 5 basis points to 3.73 percent. Nonetheless, at the meeting the Fed confirmed what the market had already concluded and made no change to the Federal funds target. The Fed went further and acknowledged that economic signals have been mixed and that the pace of monetary tightening may be slower than had been assumed at the end of 2015.
As (so far with masterly understatement) the Wall Street Journal warned early in January, this could be a “volatile year in global markets.” There’s always a risk in choosing to float or lock your rate, but it’s more acute in volatile environments. True, there are opportunities for rich rewards if rates fall substantially, but there is also a continuing danger of being trapped in an upward cycle that doesn’t end before you have to lock your rate.
So those who are cautious may wish to lock today, trading the possibility of further falls in rates for the security of fixing what should still be an exceptionally good mortgage deal in historical terms. Those who like to gamble might prefer to wait awhile before locking, hoping there will be further falls ahead. Only you can decide on the risk with which you personally are comfortable.
The Bigger Picture
Unlike most other interest rates, those for mortgages (except ones for existing adjustable-rate mortgages) are largely determined by the supply of money into the market from investors and the demand for such loans from consumers. That supply is heavily affected by the amount of risk investors are prepared to sustain in their portfolios. When spooked by economic uncertainty they tend to buy safer assets, including mortgage securities, which can result in an increased supply of product (cash) that drives down the price (rates). When they’re more confident, they tend to invest in riskier but more profitable assets, which reduces the supply of money for loans and drives up rates.
That’s not to say the Federal Reserve doesn’t indirectly influence mortgage rates, nor that the FOMC’s announcement yesterday will have no impact. Indeed, we’ve already seen how important the Fed is to these rates.
The Longer Term
Looking beyond, one hopes, the period covered by these mortgage rate lock recommendations, some economists are predicting a new worldwide recession, which might see mortgage rates fall even further. There are plenty of voices predicting doom and gloom. Last week, chief of the Bank of International Settlements (“the central bankers’ central bank”) Claudio Borio added his, remarking, “The tension between the markets’ tranquility and the underlying economic vulnerabilities had to be resolved at some point. In the recent quarter, we may have been witnessing the beginning of its resolution.” He went on, “We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time.”
However, not all experts are so pessimistic, at least when it comes to the American economy. Earlier this month, global bank Credit Suisse published its analysis: “A string of positive U.S. economic data releases have strengthened the argument that consumer demand will keep the U.S. from falling into recession in the coming months.” And, last week, a note from Comerica Bank’s economics team said:
The quality of U.S. economic data has shifted in recent weeks from being generally a little worse than expected to being generally a little better than expected … We have started to dial back our probability of near-term recession for the U.S. from an uncomfortable high of about 33 percent a month ago to about 25 percent in early March. If the recent data pattern continues, we will dial it back further next month.
Still, Fannie Mae’s predictions for average rates for 30-year FRMs changed considerably in the latest (February) edition of its Housing Forecast. It now expects that rate to average 3.8 percent throughout 2016. Fannie reckons it could increase to 3.9 percent in the first quarter of 2017, and remain there until it rises to 4.0 percent in the last quarter of next year. That’s very different from its January forecast, which predicted that rate would average 4.0 percent in the current quarter, 4.1 percent in the following two, and 4.2 percent in the last quarter of 2016. You may prefer to see the newer numbers as a sign of how difficult it is to forecast rates in a volatile environment, rather than as a reliable guide to the future.