Mortgage rates improve as stocks slide
Markets were closed yesterday to honor the passing of our 41st president. Sharing a quote from him regarding the government’s role with the economy in his honor.
“In modern societies, freedom and democracy rely on economic liberty. A free economy is nothing more than a system of communication. It simply cannot function without individual rights or a profit motive, which give people an incentive to go to work, an incentive to produce. And it certainly cannot function without the rule of law, without fair and enforceable contracts, without laws that protect property rights and punish fraud.”- George H.W. Bush
Mortgage rates:
Mortgage rates continue to improve, we are now back to the pricing we had before the October sell off that pushed rates higher. A tumultuous week for stocks is adding support for mortgage rates to improve further as investors make a flight to the safety of bonds. Stocks continue to sell off today after a nice gain Monday that was based on hopes of a trade war pause. That sentiment reversed quickly as stocks further digested the news and realized what bonds already knew, a pause is not a resolution and the uncertainty remains. And now this morning, we have an escalation with the arrest of the Huawei executive, a Chinese tech giant, facing prosecution in the US for violating sanctions with Iran. This is a catalyst event that is causing a rumble in stocks and bonds today as tensions are increasing between the US and China, which does not bode well for trade discussions. Hopefully, once the surprise factor wears off, cooler heads will prevail and bring some calm to the markets.
Stocks also being impacted by the growing concern of an impending recession due to an increasing outlook that the economy will slow in 2019. One of the indicators we look at is the yield curve, when it inverts, this has historically always signaled a recession. The yield curve inverts when investors have low confidence in the near term economy, so they demand a higher rate of return on a shorter investment period. The 2 and 5 year bonds have already inverted, meaning you get a higher rate of return on your money by buying the 2 year bond versus the 5 year bond. The 10 year is only 13 basis points away from inverting with the 2 year. We flinch at the word recession, but the reality is our economy has always had recession periods as part of the normal business cycle. A recession is defined as two consecutive declines in GDP. I think right now people are still wounded from the last “great” recession we went through as it blindsided most people who did not see it coming.
We have support now for rates to stop rising or possibly come down further depending on the course of events. Stay tuned because as you can see, things are always changing. We all know the value of owning real estate, that wont change no matter what is happening in the economy, keeping that in perspective for our mindset and our discourse with our clients. This rate decrease may not last depending on what happens next, so it is a good opportunity for people to still obtain a really terrific interest rate.
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.