This past week home loan rates were essentially unchanged from the previous week, breaking a trend of higher rates since the beginning of October.
Bonds hate good news and there is still plenty to go around:
- U.S./China trade dispute progress
- Brexit progress
- Corporate earnings remain positive, as does the economic outlook
- Fed rate cut coming — more on that below
If the week was filled with good news, then why did bonds and home loan rates remain steady?
There’s an old saying, “the cure for higher rates, is higher rates”, meaning that the recent uptick in rates was enough to attract investors searching for higher yield to buy bonds, thereby halting the increase in rates.
Before we start celebrating and thinking we are on the road to lower rates in the days ahead, the bond market must deal with a jam-packed week of news next week. The headline risk can easily cause the recent increase in rates to resume.
Bottom line: home loan rates remain near three-year lows, but up a bit from where they were at the beginning of October. As we head into a very important news week, if you are considering a home loan now is a terrific time to seize the opportunity before it goes away.
Forecast for the Week:
After a week of few economic reports, the upcoming week is filled with big headline risk events with the Jobs Report, ADP, and the Fed’s favorite inflation gauge, the Core PCE. In addition, quarterly earnings will continue, which have been positive so far this season.
But the big headlines will come from the two-day Federal Open Market Committee (Fed) meeting that kicks off on Tuesday and ends Wednesday with the Monetary Policy Statement release at 2:00 p.m. ET. The Fed is expected to cut the short-term Fed Funds Rate (FFR) by 0.25% to lower it to 1.75%. Fed Chair Powell will hold a press conference immediately following the statement.
Reminder: Fed rate cuts do not equal lower mortgage rates. A Fed rate cut or hike impacts borrowing costs for auto and student loans, credit cards, and other short-term borrowing vehicles. Long-term rates such as mortgages are impacted by the ebb and flow of mortgage bond pricing, economic growth, and inflation.
It’s important to remember that since the first rate cut at the end of July, mortgage rates have stopped improving and have actually increased since the beginning of September — according to Freddie Mac and the Mortgage Bankers Association — before leveling off last week.
Reports to watch:
- Housing data will be seen from Tuesday’s Pending Home Sales and the S&P Case-Shiller Home Price Index, along with the closely watched Consumer Confidence Index.
- ADP Private Payrolls will be delivered on Wednesday.
- On Thursday, Weekly Initial Jobless Claims, Personal Income and Spending, Chicago PMI, and the inflation readings Employment Cost Index and Core PCE will be released.
- Friday brings the government’s Jobs Report which includes Non-Farm Payrolls, the Unemployment Rate, and Hourly Earnings.