Mortgage interest rates remain near multi-year highs, as the markets prepare for Wednesday’s Federal Reserve interest rate decision. Although just less than three weeks ago the odds of a rate hike were near the 20% range; you can pretty much count on the Fed announcing another interest rate hike on Wednesday. Since the bond markets don’t like the idea of higher rates, we can expect to see mortgage bonds perform poorly for a bit. This will likely push mortgage interest rates into new multi-year highs in the near term. As bad as that sounds, it’s better for the market long term to have the Fed hike rates as failure to do so could create more rapid rate hikes in the future which would accelerate that pace of mortgage rates rising as well.
Oil prices continue to fall, breaching below the critical $50 per barrel level once more. U.S drillers continue to boost activity, countering OPEC’s strategy of draining a global glut. Last week’s 9.1% price drop was the biggest weekly loss since last November. The drop was fueled by oil rigs in the U.S. rising to their highest levels since September of 2015. Falling oil prices are generally considered to be a deflationary event for the U.S. economy, which would typically help reduce mortgage interest rates. However, with stronger jobs mixed with a growing economy, the overall picture calls for higher interest rates regardless of softening oil prices.
With bonds now hugging the floor of support, there remains great risk in floating. If bond prices fall beneath current levels, we could see rates move up quickly. We will maintain our locking bias.