16 Mar Safe Play to Lock
The Federal Reserve raised interest rates yesterday as expected. Mortgage bonds and stocks both responded favorably on the news in afternoon trading. The markets were concerned that Fed President Janet Yellen would announce an expectation of more than two remaining hikes in 2017. However, the Fed still feels that two more hikes will be all that is needed throughout the remainder of the year. The markets seemed to breathe a sigh of relief after her statements. With this event now behind us, we can expect to see rates steady near current levels for a short time before they head higher. Based on the current status of the economy, we are lucky to see rates as low as they are. The good news is that the housing market should be able to sustain higher rates. Although we could see short term drops as rates head higher, in the end it will be ok.
A second key component to yesterday’s announcement was the topic of the massive balance sheet the fed currently holds. Of this, roughly $1.7 trillion are invested in mortgage bonds. Since the Fed is now reinvesting proceeds from mortgage loans being paid off, that equates to more than $8 billion per week of mortgage bond purchases. If they were to stop, this would certainly cause rates to bounce higher. Janet stated that at the current time, there are no plans to change course. This is great news to bond holders, which is part of the reason bonds improved yesterday.
Bonds are down so far this morning. Yesterday was a great day to lock. However, rates are nearly as good today. Although there is no driving reason to rush to lock at the moment, we remain in an increasing rate cycle. Therefore, the safe play will be to lock.