Right now, the biggest news story to follow is the U.S. and China trade negotiations.
This past week, home loans started inching higher but were “saved” momentarily midweek when reports came out suggesting a delay of a “phase one” trade deal signing. Remember that bonds and home loan rates like bad news, so a disruption or delay of the trade signing was the reason for rates to improve off the worst levels midweek.
However, come Thursday, word that both the U.S. and China would roll back tariffs as a deal gets put together was very good news which pushed stocks to all-time highs at the expense of bonds and home loan rates.
Even with the recent uptick, home loan rates are at the same level they were at back on July 31st when the Fed cut rates for the first time in 10 years. The Fed has since cut rates two more times and home loan rates have not improved any further.
A word of caution: long-term rates like mortgages can move up very fast, and it is in a complacent environment like today when things suddenly change. Using history as an example, the 10-year Note yield has traded at 1.40% or lower on three separate occasions in the past seven years. In the two previous times — 2012 and 2016 — the 10-year yield quickly spiked to 3% and 2.75% respectively in just six months. This sharp move higher in yield also weighed on home loans, which also rose sharply.
Bottom line: if you or someone you know is considering a new mortgage, now may be an opportune time before this window closes.
Forecast for the Week
The upcoming holiday-shortened week will feature a few key economic reports from consumer spending, manufacturing, and consumer inflation.
The bond markets are closed on Monday in observance of Veterans Day.
On the inflation front, last week, Chicago Fed President Charles Evans said it’s very difficult to generate inflation in the current U.S. economic environment. If inflation doesn’t go up, there is a limit to how high home loan rates can go – which is a good thing.
With earnings season just about ending, the markets will continue to follow the biggest story, the U.S./China trade headlines.
Reports to watch:
- The inflation reading Consumer Price Index will be released on Wednesday followed by the Producer Price Index on Thursday.
- Retail Sales will be released on Friday along with the Empire State Manufacturing Index.