Mortgage rates improve as the Fed changes it tone

Mortgage rates:  A shift is taking place with interest rates, so I wanted to give you a quick update on what is happening.  First, the Fed chair Powell made a subtle yet significant change in his tone to the markets.  The comment was brief, but it’s what the markets wanted to hear.  He said we are “near a neutral rate”. The neutral rate is the rate that Fed feels the market is balanced; growing not too fast and not too slow.  Until this week, the Fed has indicated that we were not close to reaching this rate, causing the major sell offs we saw in stocks as they feared rising rates impact. We discussed in detail in the last update that both the Fed and President know what rates rising too fast would do to the markets and I expressed my concern about the deliberate path the Fed seemed to be on with the rate hikes.

Both Stocks and Bonds rallied on the change in the Fed tone, improving mortgage rates slightly.  A December rate hike is already priced into the markets but now the outlook for hikes in 2019 has gone from 3-4 hikes to maybe 1-2.  What changed this outlook? 

The Fed is concerned with the expected slowing of growth in 2019.  There are also concerns that we will get inflation due to the tariffs if agreements are not reached.  There is good inflation and bad inflation.  Prices for goods increasing due to tariffs is not good, but wages increasing is good inflation.  At this point, neither inflation is happening, the core PCE (Personal Consumption Expenditures) released this week showed inflation at 1.8% over last year, which is under the Feds target of 2.0%. 

All markets watching today as the G-20 summit continues with Trump meeting with China today and over the weekend to hopefully provide some hope of an agreement being reached.  Already we received promising news that a new NAFTA agreement has been signed with Mexico and Canada but still needs to be signed off by Congress.  Mortgage bonds need something more concrete than hope, but stocks will react to any announcement on a whim, so don’t watch that too closely. 

Our bell weather, the 10 year treasury (that doesn’t lie) is touching down to a significant technical level today.  Currently trading at 3.02%,  a close below 3.00% would cause a significant movement in mortgage rates for the better.  Watch this if you want to know what is really happening in the markets.

At this point, it is hard to say if we have a new trading channel and support for these better prices, but I thought I would inform you of the latest news since it is very good for the real estate industry.  Things change on a dime so stay tuned…We are getting close to pricing levels we had before the October sell off (yah!)

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.