Mortgage bonds haven’t left the woodshed since the results of the election were announced on Wednesday morning, with today being another brutal day for mortgage interest rates. In just a few days, interest rates moved from a best case of 3.25% with up to a 1% fee to achieve the rate to now being 3.75% for the same level of pricing. The .5% increase in rate has happened more quickly than any similar increase I can remember in my 20-year career in the mortgage industry. Although rates are still moving higher even as we speak, we are hopeful that we are nearing the end of this brutal experience. With bonds just a short distance away from multi-year high rates, the floor below should be more difficult to break below. If we do fall below that level, keep a hold of your pants; it could get very ugly.
The US stock market reached new intra-day highs this morning, as it continues to celebrate a Donald Trump Presidency. The consensus is that businesses will have fewer regulations going forward, which will provide a nice tailwind for many US companies soon. Thus, investors are jumping on board and pouring more money into stocks to take advantage of the potential gains. This has drained money out of the bond market, causing mortgage rates to jump higher. Hopefully, the Fed will step in and raise rates. That could be the savior needed to end this painful experience.
The old term, “Fear does not leave on a Donkey,” is certainly ringing true. We have lost nearly all the bond market gains of 2016 in just a few trading days. This has many potential homebuyers in shock, hoping for a safety net. As we wait to see where bonds will finally stabilize, we will maintain our locking bias.