Mel's Blog

What Happened to Mortgage Rates?

February 5th, 2018 1:37 PM by Mel Samick

Comments from a European Central Bank official and stronger than expected data on wage growth were negative for mortgage rates this week. Wednesday's Fed meeting contained no surprises and had little impact. The upward trend seen in recent weeks continued, and mortgage rates ended at the highest levels in years.

 

Unfavorable news for mortgage rates has come from many directions this year. Investors have raised their outlook for economic growth in the U.S., partly due to the tax cuts, and the data has supported this view. Strength has been seen in most regions outside the U.S. as well. While this has been great for the stock market, faster growth raises expectations for future inflation, which is negative for mortgage rates.

 

In addition, the supply and demand dynamics have shifted adversely for mortgage rates. The U.S. budget deficit is projected to increase, adding to the supply of bonds. Meanwhile, investors are concerned about decreased demand for bonds globally. On January 10, a report was released suggesting that China may scale back its purchases of U.S. bonds in response to trade tensions. There also have been hints that European Central Bank (ECB) officials have begun to discuss when to end the ECB's bond purchase program. The potential for greater supply and less demand has been one reason that investors have pushed global bond yields, including U.S. mortgage rates, higher.

The latest blow to bonds from the ECB took place on Monday. An ECB official said that the ECB should end its bond purchases as soon as possible after the current program ends in September. This was one of the most direct displays of support for ending the bond purchase program yet, and global bond yields moved higher.

Average hourly earnings in January were 2.9% higher than a year ago, up from an upwardly revised annual rate of 2.7% in December, and the highest level in eight years. Other than the two months distorted by the hurricanes, wage growth held steady around 2.5% for most of 2017.

 

Mel
Information provided by MBS Quoteline

Posted in:General
Posted by Mel Samick on February 5th, 2018 1:37 PM

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