Curve

Beware: Today’s Mortgage Rates Subject To “Long Weekend” Effect

Lou Barnes
The Mortgage Reports contributor

Mortgage Rates Bouncing Off Bottom?

Financial markets are in a bit of spring break, common to the last week of every month as markets wait for the often-explosive data released when a new month begins.

Hence, here both a review of mortgage rates and a look forward — first domestic, then overseas. Never in modern US history have foreign matters been so important to U.S. markets.

For the second time this year, mortgage rates have again bottomed near 3.75%.

We should take the pattern seriously because it has occurred despite generally-soft U.S. economic data, which should have helped mortgage rates to drop. 

For example, orders for Durable Goods in February were especially poor, down 0.4% as compared to the month prior. Analysts expected a gain. Mortgage rates failed to drop as would be expected on news such as this.

Click for today's live mortgage rates (Dec 8th, 2019).

Mortgage Rates Hit By Falling Dollar, ECB

Rates also failed to drop during the last week’s late-week stock market air pockets in the stock market. This means that money wasn’t moving from stocks to bonds, which helps U.S. mortgage rates, but from stocks to “something else”.

Other supports for bonds and lower rates faltered, too.

The U.S. dollar stopped climbing, which reduced the attractiveness of mortgage-backed securities (MBS) to global investors; and, oil prices stopped falling, which increases the likelihood of inflation in future months. Inflation is bad for mortgage rates.

And don’t forget the overseas effects on rates.

Reviewing foreign conditions and their effect on U.S. rates is a lot like how we older folks run a checklist on our bodies each morning. To get a feel for the future of mortgage rates, start with the Middle East: Is conflict pushing up the prices of oil? This week, at least, likely not.

Same for Ukraine — there may be more strife ahead but, for now, events are calm. Mortgage rates are less likely to fall during times such as these.

Another question to ask is whether the European Central Bank (ECB) has introduced new stimulus?

The ECB has proceed with quantitative easing (QE), the same program used by the Federal Reserve to help keep U.S. mortgage rates suppressed in support of the economy, but with interest rates are already so low throughout Europe, the ECB is almost buying cash with cash.

Eventually, the European economy is expected improve but, because of the currency devaluation that programs such as QE can cause, European growth may be zero-sum.

Click for today's live rates (Dec 8th, 2019).

Is Greece Leaving The Euro Yet?

Additionally, there are ongoing troubles in Greece relating to the nation’s massive debt load and the mediterranean nation remains a threat to leave the Euro economy.

A Greek exit could happen at any time. This would help mortgage rates to drop for a short period of time, but would only cause serious upset if the exit sparked a contagion, which seems unlikely.

There is also Japan.

Japan continues to struggle with its economy and deflation pressures may have returned. This can help U.S. mortgage rates as monies flow out of Japan and into other nations where investment yields are positive.

As compared to the last year, today’s overseas rundown is scary, but less scary than it’s been. This is unfortunate for today’s mortgage rate shoppers because “worry” can lead to low borrowing costs for U.S. consumers.

Therefore, the reason for the bottoming of mortgage interest rates is this: the Federal Reserve is coming.

The U.S. bond market has done a splendid job maintaining denial, but cracks are beginning to show in that resolve. Markets are prepping for an eventual improvement in the U.S. economy so it would require a steady feed of poor U.S. economic data for the Federal Reserve to delay its Fed Funds rate liftoff.

Long Weekends Can Be Tough On Rates

This week, some key economic news will be released. Notably, the all-important payroll and wage data will hit Friday, April 3. Coincidentally, this is also Good Friday and Passover which means that markets will be closed, which means that mortgage rates won’t feel the effects of the report until next Monday.

Beware long weekends.

The worst “long weekend” of my mortgage-market life was in 1979 with Volcker’s Massacre over Columbus Day weekend.

The second-worst long weekend was Good Friday/Passover weekend in 1994. The Fed had just started a tightening cycle which lifted the Fed Funds Rate from 3% to 6% in one year, and the market reacted to a positive job-market surprise.

Mortgage rates rose one-half percentage point that Easter/Passover weekend. I’m not predicting that will happen this year with the release of the Non-Farm Payrolls report on Friday, of course. Just sayin’.

Click for today's live mortgage rates (Dec 8th, 2019).