“It’s a tug of war, we expected more.” (Paul McCartney) Home loan rates bounced around this week due to volatility in the U.S. Bond market, but went into the weekend still near three-month lows.
There are push/pull items that continue to limit how low and high rates can go. Here is what home shoppers should know:
Factors currently limiting how low rates can go:
- Tight U.S. labor market
- Rising wages, fastest pace in a decade
- Soaring business and consumer confidence
- Solid economic growth
- Tough technical barriers
Factors currently limiting how high rates can go:
- Slowing economic conditions around the globe
- Low global bond yields — German 10-year bund yield is 0.28% and the U.S. 10-year note yield is 2.90%. If yields stay low in other parts of globe, there is a limit as to how high long-term rates can go.
- Disinflation or slowdown in the rate of inflation around globe, including the U.S
- A split Congress that likely ensures no real fiscal stimulus in the near future
- Pace of Fed rate hikes are slowing due to all of the above
Bottom line, we are in a very unique economy where we have strong growth, a tight labor market, low inflation and low rates — all making a great backdrop to buy a home.
Next week it’s all about the Fed! The scheduled two-day Federal Open Market Committee meeting will kick off on Tuesday and ends Wednesday with the release of the monetary policy statement at 2:00 p.m. ET.
The financial markets have placed an 80% probability that the Fed will increase the short-term Fed Funds Rate by 0.25% to 2.75%. With the rate hike expected, what the statement reveals regarding the path of future interest rate moves may be the market moving event.
Come Friday, the Fed’s favorite inflation gauge, the annual Core PCE, will be released. With future rate hikes being mostly determined by the rate of inflation — this is an important number to track.
Reports to watch:
- The Empire Manufacturing Index will be delivered on Monday followed by the Philadelphia Fed Index on Thursday.
- Housing Starts and Building Permits will be released on Tuesday followed by Existing Home Sales on Wednesday.
- The final reading on third-quarter Gross Domestic Product will be released on Friday along with Core PCE.