Rate Lock Advisory

Friday, January 9th

Friday’s bond market has opened down slightly following mixed economic news. Stocks are showing minor gains of 19 points in the Dow and 36 points in the Nasdaq. The bond market is currently down 1/32 (4.17%), but a big move in mortgage bonds late yesterday should allow this morning’s mortgage rates to be approximately .375 of a discount point lower than Thursday’s early pricing.

1/32

Bonds

30 yr - 4.17%

19

Dow

49,285

36

NASDAQ

23,516

Mortgage Rate Trend

Trailing 90 Days - National Average

  • 30 Year Fixed
  • 15 Year Fixed
  • 5/1 ARM

Indexes Affecting Rate Lock

High

Positive

Economic Stimulus News

Yesterday’s totally unexpected news from President Trump that he has instructed his representatives to purchase $200 billion in mortgage bonds caused a rally in related securities just after the trading day ended. The announcement currently brings more questions than answers, particularly if the plan would threaten the financial stability of those agencies. It would be similar to what the Fed does during financial turmoil (Quantitative Easing - aka QE), but to a significantly smaller scale, with the intent being to bring more demand to the mortgage bond market by purchasing those securities in an attempt to drive mortgage rates lower. Realistically though, that amount is just a drop in the bucket per se, meaning its impact on rates would likely be relatively minimal and only temporary. We certainly should accept the announcement as favorable for rates today. However, it isn’t going to significantly alter the path of mortgage rates over an extended period of time.

High

Neutral

Employment Situation

Today’s major economic news was December’s Employment report that revealed the U.S. unemployment rate fell to 4.4%, down from November’s revised 4.5%. This was a bit lower than the 4.5% that was expected, but November’s rate was revised from 4.6% to 4.5%. It also showed 50,000 new payrolls were added to the economy, which was fewer than predicted. A declining unemployment rate is a sign of economic strength that is considered to be bad news for bonds and mortgage rates. However, lower than expected payroll growth makes bonds more attractive to investors and helps mortgage rates to move lower.

High

Negative

Employment Situation

The third headline number in the Employment report is average hourly earnings that rose 0.3% last month and 3.8% year over year. Bonds tend to be sensitive to this reading because rising wages fuel inflation across the broader economy, making a bond’s future fixed interest payments less appealing to investors today. December’s monthly increase in wages met expectations, but the annual increase was stronger than forecasted. Accordingly, this reading in the report is being labeled slightly bad news for bonds and mortgage rates.

Medium

Negative

Univ of Mich Consumer Sentiment (Prelim)

Closing out this week’s calendar was January’s preliminary reading to the University of Michigan's Index of Consumer Sentiment at 10:00 AM ET. They announced January’s reading stood at 54.0, rising from December’s 52.9. The increase indicates surveyed consumers feel better about their financial and employment situations this month than they did last month. Since stronger confidence usually translates into higher levels of consumer spending that fuels economic growth, we are labeling the report slightly negative for bond prices and mortgage rates.

High

Unknown

Consumer Price Index (CPI)

Next week has another packed calendar with several highly influential economic reports and other events scheduled, including two extremely important inflation indexes and a closely watched report on consumer spending. In addition to the data, we also have two Treasury auctions of long-term debt and a large number of Fed speeches taking place. Monday doesn’t have any data scheduled, but the first of those relevant auctions is happening Monday and will come into play during afternoon hours. Look for details on all of next week’s activities in Sunday evening’s weekly preview.

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

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