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Jason Obradovich - Chief Investment Officer

30 Year Fixed – 3.250% / 3.381% APR   15 Year Fixed – 2.875 /3.111% APR   FHA 30 Year Fixed – 2.750% / 3.549% APR   VA 30 Year Fixed – 2.750% / 3.135% APR

Rates are current as of 02/21/20 | View Disclosures

Housing Market Update Center

Translating the complexity of the markets into a concise and easy to digest format. Watch videos, read blogs, and view key data on short and medium term trends impacting interest rates, so you can make the right decision for your situation.

Latest Market Update

Risk to Growth

Welcome back to the Mortgage Rundown.  Today we are going to talk about what’s happening in the capital markets.

2020 is off to a fast start with interest rates dropping the entire month of January.  The 10yr Treasury dropped from 1.88% at year-end to 1.50% by the end of last month.  Currently, we are hovering right around 1.65% as the market adjusts to a new range.

With stock prices that have been climbing very steadily since the end of 2018, we have now entered a phase where there is concern that this run likely can’t continue.   That’s pushed more and more investors out of commodities like oil and into the security of bonds.

Take a look at the graph on your screen which shows the 10yr Treasury yield in blue compared to the price of oil in orange.  As you can see, since the end of last year both have moved considerably lower and in tandem.  Typically when they both move lower in tandem it’s a signal that the market is concerned about future growth.

The only thing keeping interest rates from falling further is the strength of the US economy.  GDP, earnings and employment are all very strong.  However, if there is a hiccup in growth or at least the risk to growth then we could see rates fall further.  The other unknowns are the upcoming election as well as the current coronavirus outbreak.

In terms of the election, it’s not the potential results of the Presidential election, right now it’s about the Democratic frontrunner and how he or she will be perceived by the market; are they considered to be more pro-capitalism or pro-socialism?

Also we have the threat of the coronavirus, which as of right now is not contained.  It’s too soon to tell the damage to China’s economy but in terms of the election and the virus it’s about this theme of “risk to growth”.

If there is perceived risk then it will likely push interest rates lower and if the threat seems to subside then rates will move higher.  The market as of today has a lot of that risk to growth priced in and now we see an 84% chance that the FOMC lowers rates in 2020 with zero percent change they actually raise rates.

Previous Market Update

Where are Interest Rates Headed in 2020?

Happy New Year and welcome back to the Mortgage Rundown.  Today we are going to talk about what’s happening in the capital markets.

After an exciting 2019 and watching interest rates drop 125bps from high to low, the end of 2019 and the beginning of 2020 has rates holding relatively flat.  Looking at the chart on your screen, the 10yr is currently at 1.85%, which is close to the middle of the range since the beginning of November.

Economic data continues to be strong and the resilience of the US economy in the face of an ongoing trade war is a reality the market has acknowledged.  Despite calls over the past several months of an upcoming recession, there is still no evidence of an economic slowdown in the US. 

In fact, up through the end of 2019, the market was pricing in a 0% chance the Fed would actually raise rates in 2020, but if you look at the futures contracts this morning there is now a 10% probability that they raise rates in January.  Now a 10% chance is very unlikely but it makes the point that the economy is on more solid footing than previously thought.  

The probability of a rate cut this month on January 29th is at 0% and the chance they cut rates at all in 2020 is only 60%.  That means the market is pricing in a 35% chance the Fed doesn’t do anything at all in 2020.  In the past, we’ve come into the new year with usual certainty that the Fed would either cut rates or raise rates for that calendar year.  So I would expect 2020 to be a year of uncertainty. 

  • Uncertainty with regard to interest rate policy
  • Uncertainty with regard to the upcoming election and impeachment
  • And uncertainty with regard to the forward economic strength of the US and world economies.

All of this uncertainty is usually paired with interest rate volatility.  As of right now, volatility is very low and rates are trading within a tight range.  As the year takes more shape we could see interest rates start moving in a certain direction and it’s a big unknown if that is higher or lower; we will have to continue to watch this unfold.

 

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