Tax Reform Drives Mortgage Rates Higher

Mortgage bonds are losing their composure, now near the lowest levels we have seen in months. That has created a strong upward thrust in mortgage interest rate pricing.  With the Tax Reform bill expected to be signed by both the House and Senate today, this move higher in interest rates is primarily driven by economic optimism associated with the lower tax rates.  For the sake of mortgage interest rates, we can hope that this will be a case where investors sell on the rumor and buy on the news.  Meaning they step back into the mortgage bond market once the plan is finalized and the hype has passed.  But more likely, we will see rates continue to deteriorate as stocks continue to set fresh all-time highs.

Housing Starts were reported at a pace that was 41,000 stronger than last month on a year over year basis. Clearly, the housing market has made a complete recovery from the recession of eight years ago. With the tax reform bill increasing the disposable income that many families will have available for housing, the housing market is set for a strong continuance.  This has home builders feeling optimistic about their futures and willing to take on additional risks associated with building more homes.

Mortgage bonds continue to break beneath significant support levels. Further, the 10 Year Treasury Note yield is now trading above the 2.385% level.  This is a negative sign for mortgage interest rates.

We will maintain our locking bias.