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Mortgage Market in Review – December 31, 2018


Market Comment

Mortgage bond prices finished the week near unchanged to slightly positive which kept rates steady.  We started on a neutral note Monday amid thin trading conditions and a shortened trading day.  The 2Y Treasury auction showed weak demand which caused some concern.  The US is bleeding red ink with $1T+ annual deficits added to $22T in debt. The cost to service the growing debt sucks money out of tax receipts that could be used for other things like replacing the crumbling infrastructure.  The Treasury auction of $41B of 5-year notes was awful, both indicators of demand were well below average.  Weekly jobless claims missed the mark with an increase of 216K versus an expected 225K reading.  Mortgage interest rates finished the week unchanged to better by 1/8 of a discount point.


Date & Time

ADP Employment Thursday, Jan. 3,
8:30 am, et
176K Important.  An indication of employment.  Weakness may bring lower rates.
Weekly Jobless Claims Thursday, Jan. 3,
8:30 am, et
216K Important.  An indication of employment.   Higher claims may result in lower rates.
Construction Spending Thursday, Jan. 3,
10:00 am, et
Down 0.2% Low importance.  An indication of economic strength.  Significant weakness may lead to lower rates.
ISM Index Thursday, Jan. 3,
10:00 am, et
59 Important.  A measure of manufacturer sentiment.  Weakness may lead to lower mortgage rates.
Employment Friday, Jan. 4,
8:30 am, et
Payrolls +150K
Very important.  An increase in unemployment or weakness in payrolls may bring lower rates.

The Year Ahead

The future of the economy will continue to be debated.  There is no certainty in predictions but the recent data, Fed statements, and Fed action clearly signal continued signs of improvement.  The biggest concern recently has been the extreme stock volatility.  Stocks took a beating in the months prior to the Christmas Holiday only to bounce back over 1000 points the day after.  Continued volatility will do little to ease investor fears.


Recent analysis of Fed statements and projections predicts fewer rate hikes in 2019 but doesn’t remove them completely.  Many analysts calculate there will only 2 hikes in 2019 as opposed to predictions a few months ago of 3 or more.  The effect on the housing sector, which remains a vital part of the economy, remains uncertain.  However, the last thing the housing market needs is higher rates.


What we can be certain of is the likeliness that mortgage interest rates will become volatile as we get closer to the next Fed rate hike.  Historically, mortgage interest rates seem to improve slowly.  In contrast, when rates increase, they often do so quickly and furiously.  One negative day often erases a week of positive improvements.


The Fed isn’t the only player in the financial markets and there are many others buying and selling securities.  Remember that the Fed does not directly dictate that mortgage interest rates will be at a certain rate.  Rates are determined by the supply and demand for mortgage-backed securities and can change rapidly hour to hour.  Now is a great time to take advantage of mortgage interest rates at these still favorable levels and avoid exposure to future market volatility.


Copyright 2018. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.