U.S. bond yields and home loan rates ticked modestly higher this week as the world watches the U.S. and China have their first serious talk since July. There is a growing sentiment that the U.S. and China will agree to some short-term measures like a postponement of tariffs, while the two sides work on a more comprehensive agreement.
A short-term agreement or small win with U.S. and China would be good news, and home loan rates hate good news, hence a reason for the modest uptick in rates.
Also pressuring rates higher is the notion the Fed will once again cut rates on October 30. Yes, a Fed rate cut is putting pressure on home loan rates. A Fed rate cut is designed to help the U.S. economy avoid a recession, while increasing inflation. Both of which are bad news for long-term bonds like mortgage backed securities, which price home loan rates.
For folks considering a new mortgage, it is important to note that home loan rates literally stopped improving once the Fed started cutting rates back on July 31st.
So, shoppers shouldn’t wait until October 30 thinking rates will be .25% lower because the Fed will be cutting the short-term Fed Funds Rate. Home loan rates could be lower by month’s end, but the driver will more likely be the outcome of the U.S./China talks and not what the Fed is doing.
Bottom line: home loan rates remain right near three-year lows as the financial markets watch the outcomes of the U.S. and China talks. Good news will limit how much home loan rates can improve, while bad news can have the opposite effect.
Forecast for the Week
The upcoming week is holiday shortened with Columbus Day being observed on Monday. The U.S. bond markets are closed, while the stock markets undergo normal trading hours.
The fears of a U.S. recession are centered around our manufacturing sector and this upcoming week we will see two key reports from the industry. If these readings disappoint, the chance of a Fed rate cut goes higher still.
We will also receive a couple housing reports this coming week. Housing has been a bright spot in our economy thanks to 50-year low unemployment and historically low home loan rates. We see housing adding a boost to 3rd quarter GDP.
Economic data will continue to take a backseat to the U.S./China trade talks, along with heightened tensions in the Mideast, and the ongoing circus in Washington. In addition, quarterly earnings season unofficially kicks off in the upcoming week, and the numbers and guidance could have a major impact on the markets as well as mortgage rates.
Reports to watch:
- Manufacturing data from Tuesday’s Empire State Manufacturing Index and Friday’s Philadelphia Fed Index will be closely scrutinized.
- Another key report will be Tuesday’s Retail Sales report, which will gauge the strength of the U.S. consumer.
- Housing Starts and Building Permits will be delivered on Thursday, along with Weekly Initial Jobless Claims.
If you or someone you know has any questions about home loan rates, please give me a call. I’d be happy to help!