Three Reasons Why Mortgage Rates Should Have Improved

Home loan rates continue to hover near all-time lows. There are three reasons why rates should have improved last week, but didn’t.

Here is some of the “Bond-friendly” news from last week that was unable to push mortgage-backed security (MBS) prices higher and home loan rates lower:

1. Unemployment: The unemployment line is growing. This past week another 3.85 million people filed for unemployment insurance, bringing the total to a staggering 30,000,000 since mid-March. Bonds embrace bad news, and this was bad news.
2. Core PCE: The Federal Reserve's favorite gauge on consumer inflation, the Core Personal Consumption Expenditure Index (PCE), was reported at -0.1%, well beneath expectations. Inflation is like the tide that raises all boats - when it declines, like we are seeing, rates typically decline as well. That did not happen last week.
3. Monetary Policy Statement: This past week, the Federal Reserve issued their Monetary Policy Statement and shared that they will continue purchasing MBS "to support smooth market functioning". Bonds and home loan rates were unable to improve further despite the Fed's continued buying commitment.

Have we reached the “bottom” in rates?

Quite possibly.

Despite a poor May opening, stocks ended April up 12%, the best month since the '80s. At the same time, the 10-year note, a benchmark for longer term rates, has been unable to move convincingly below .60%. Both stocks and the 10-year note are forward looking and appear, at the moment, to be ignoring the economic numbers that continue to roll in.

Bottom line: For those who have an opportunity to lock in a home loan rate, now is an incredible time. It's not yet clear that once our economy starts re-opening that rates will stay near current levels. If last week was any gauge, it is suggesting they won't.