Mortgage Rates Flat Again, Despite Modest Market Weakness

Mortgage Rates Flat Again, Despite Modest Market Weakness

Bajak and Associates

Mortgage rates were flat again today, further prolonging a trend that's been in place for weeks.  During that time, we've seen modest ups and downs, but no significant changes.  To put the narrowness of the range in context, the "ups and downs" are only seen in the upfront costs associated with any given mortgage rate.  Rates themselves haven't changed for the average loan scenario.

Today's absence of change belies market movement to some extent.  The bonds that underlie mortgage rates weakened enough through the course of the day that mortgage lenders were nearly justified in a mid-day rate sheet adjustment (for the worse).  When this happens (i.e. when bonds weaken, but not quite by enough to prompt mid-day changes), the implication is that tomorrow starts out at a slight disadvantage.  In other words, if bond markets simply hold steady overnight, borrowing costs could edge higher.

Ongoing Lock/Float Considerations

Rates moved higher in a serious way due to several big-picture headwinds, including: the Fed's rate hike outlook (and general policy tightening), the increased amount of Treasury issuance to pay for the tax bill (higher bond issuance = higher rates), and the possibility that fiscal stimulus results in higher growth/inflation.

Despite those headwinds, the upward momentum in rates has cooled off heading into the summer months.  This could merely be the eye of the storm, or it could end up being the moment where markets began to doubt that prevailing trends would continue.

It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly.  Temporary corrections can be explained away, but it will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  While that doesn't necessarily mean rates have to skyrocket, there's a good chance it means rates will struggle to move much lower than early 2018 lows until more convincing motivation shows up.

If you plan to or are actively searching for a new home, this would be a perfect time to get pre-qualified.

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Source: Matthew Graham, Mortgage News Daily, July 18, 2018