30 May Lower Rate Ahead?
The mortgage bond market remains strong, with bond prices holding up against a critical ceiling of resistance. If prices break above this level, we will see a nice improvement to mortgage interest rates. Although I’m confident this will happen, it’s a matter of when. When this does happen, we will see mortgage rates fall and continue to improve over time. This means that now is not the time to pay closing costs for a mortgage or to buy out mortgage insurance. Choose a no-cost loan and pay monthly mortgage insurance. There is a strong likelihood that a loan closed now as a no-cost mortgage will have a refinance opportunity in the months to come.
The Pending Home Sales report (which measures signed contracts to purchase existing homes), showed a decrease of 1.5% from the prior month. Given that this is measuring existing home buyer activity at the beginning of the strong summer months of home sales, this is clearly a sign of slowdown in the housing market. When you combine the timing and the fact that this is after mortgage interest rates took a nice drop lower, this is truly shocking to see. Although most experts aren’t anticipating a slowdown in the housing market, I don’t align with the common belief. The Fed may only see a 27% chance of a recession in the next 12 months, but I see the percentage as being much higher than that. Although housing doesn’t always fall during a recession, a slow down at minimum can be expected. This reality should at least be factored into a homebuying purchase decision.
Although I do believe bond prices will break higher, I can’t confidently advise floating until this in fact happens. If you choose to float, do so carefully. If you aren’t a risk taker, you should lock while we are matching the lowest rates have been in roughly 16 months.