Global Weakness Leads to Recessionary Fears

After yesterday’s rally, stocks are falling hard in early morning trading. This move is being fueled by news out of Germany that has caused the yield on their bonds to fall to the lowest levels ever. This monumental move is a clear sign of presumed weakness and is flowing into the US markets. Whether or not this will be enough to push mortgage bond prices above the duel ceiling of resistance remains to be seen. In the meantime, we get to enjoy mortgage rates that match lows that we last saw in the final months of 2017. I continue to believe that we haven’t yet seen the lows we will get to see in this rate cycle. I see lower rates ahead.

Market investors are becoming more aware of the probability of a recession, which is also contributing to the drop in mortgage interest rates. In fact, today’s Industrial Production report registered the biggest decline in almost a decade. As concerns and the reality of what lies ahead escalate, we can expect to see further declines in the stock market and bond yields. I believe that we will soon see the lowest yields in history in the 10 Year Treasury Bond market. This will cause safe money to flow into the mortgage bond market, which will help lower mortgage interest rates. Look for continued slowing in the pace of home value appreciation. Although that is not an opinion shared by many economists, I see it as likely.

Unless bonds can break above the duel layer of overhead resistance, there is great risk in floating. There is no need to immediately lock. But unless bonds make a break higher, there is no benefit to float on loans that need to close in the near-term. Of course, continue floating on longer term transactions.