Mortgage rates are usually determined by the prices of mortgage-based securities, as well as 10-year treasuries (because the latter behaves much like the former). When the prices for both move lower, their yields come up. As a result, mortgage rates go up. Both mortgages and 10-year treasuries saw their prices move down today and, accordingly…mortgage rates went down.
Indeed, mortgage rates slipped just a tad lower today despite all mathematical models suggesting that they should have moved in the opposite direction.
What’s the explanation?
One primary cause for mortgage rates to keep on keeping on without a change is the cautious approach of lenders recently. Those guys haven’t changed their rate sheets based on the market gains seen last Friday, and that may have impacted Wednesday’s findings. They haven’t been too aggressive in general, considering how low rates are sitting as it stands. That means there’s more leeway for the markets to change without mortgage rates reflecting it.
It’s more interesting that lenders didn’t retract or reissue their rates. That means we’re almost sure to see mortgage rates increase on Thursday, even if bond market stays steady.
Ultimate summary of events, according to Constantine Floropoulos—the vice president of The Federal Savings Bank:
“Not a great start to the week or the new month, but it could always be worse. We are trading in a confined range for now, and personally I think it’s great. Interest rates are low, and with the trade being confined in a tight range it really allows for a little bit of stability in the range of rates for borrowers. This current range allows for more time to make a decision in locking.”
The Fed is obviously backing off on its original projections of four rate increases across 2016, and as of the last Fed meeting on April 27, rate setters are now estimating just two increases before December. The next is most likely to come in June (The Fed’s next meeting), according to 75 percent of the economists polled by The Wall Street Journal prior to April’s meeting.
There is some question why the institution is being less than aggressive with regard to the rates. More than 215,000 jobs were added during March, which is a healthy amount higher than the supposed threshold for an increase. Inflation is also rising according to schedule. The ultimate reason probably lies in growth weakness, as growth has been less than 1 percent annualized in the first quarter of 2016.
Considering the encouraging signs listed above, the Fed’s attitude could change sooner than later.