Mortgage Rates Improved!

October 8, 2018

Inflation is critical to the Fed's decision-making process--especially because we're currently at an important crossroads.  For the first time since before the financial crisis, core inflation stands a chance to make a sustained move up and over the 2% barrier.  2% is generally the line in the sand, above which the Fed is more apt to think about tightening monetary policy (i.e. doing things that push interest rates higher).  This time around, they began tightening well in advance of 2% inflation because they were highly confident in the inflation outlook (and they were right).

If the Fed doesn't see inflation running hotter than expected, and if today's interest rates do what they can to price-in future expectations, the only risk remaining is that inflation progresses slower than expected.  That would be good for rates and that's essentially why rates recaptured some recently-lost territory today.

Loan Originator Perspective

Bond markets caught a small reprieve today, as the FOMC statement and press conference by Chairman Powell played to prior expectations.  The "rally" was welcome, but may be fleeting.  It's certainly way too early to pronounce the rising rate trend over.  I'm floating a couple of applications overnight in hopes of small improvement on tomorrow's pricing (since few lenders repriced better this PM), but I'll need to see several days of gains before my "lock early" sentiment changes. -Ted Rood, Senior Originator

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.
  • Rates cooled off heading in the summer months, but that proved to be the eye of an ongoing storm.  As long as economic data remains strong, rates can continue to move higher in general, even though there may be brief periods of correction.
  • It makes sense to remain defensive (i.e. generally more lock-biased) because the headwinds mentioned above won't die down quickly.  It will take a big change in economic fundamentals or geopolitical risk for the big picture to change.  

Yes! More Mortgage Applications!

Jann Swanson reports that the Mortgage Bankers Association (MBA) says its Market Composite Index, a measure of mortgage application volume, moved higher during the week ending September 21 as did all of its seasonally adjusted and unadjusted components.  It was the second straight week that all of the MBA indices gained ground, the first such double play since early 2016.

The Component index was up 2.9 percent on a seasonally adjusted basis compared to the week ending September 14 and 2.0 percent on an unadjusted basis. 

The volume of applications for purchase mortgages increased 3 percent on an adjusted basis, the fourth week in a row that measure has gained ground.  It was up 2 percent before adjustment.  The unadjusted version was 4 percent higher than during the same week in 2017.

The Refinancing Index rose 3 percent from its prior level and the refinancing share of total applications increased to 39.4 percent from 39.0 percent the previous week.

**All reports from Mortgage Daily News