03 Mar Great Risk in Floating
Mortgage interest rates have changed from being nearly the best we have had in all of 2017 to the worse they have been all in a short number of trading days. The negative sentiment in the market has been heavily influenced by the continued optimism spurred by President Trump as well as an overall fear of what the Federal Reserve plans to do. With the market coming to grips of a likely Fed rate hike on the 15th of March, hopefully the markets can settle down. Based on recent inflation data, a rate hike seems to be the best alternative for the near term direction of mortgage interest rates. If the Fed fails to respond with a rate hike, markets will become overwhelmingly fearful of pending inflation and drive interest rates higher on longer term debt.
Mortgage bonds are near a significant floor of support that could serve as a springboard to help improve mortgage interest rates later in the day. However, it’s too early at this point to say for sure if that will be the case. If bonds happen to break beneath support, we will likely see interest rates move up another 1/8% very quickly. Rates would then match the multi-year highs that we saw at the end of 2016. We are hopeful that won’t happen. However, we must be prepared in case it does.
There remains great risk in floating. As long as bonds remain above support, there is no need to immediately rush to lock. However, float only if you are able to watch the markets closely.