Rate Lock Advisory

Wednesday, January 26th

This week’s FOMC meeting adjourned with the Fed leaving key short-term interest rates unchanged, for the time being. This was widely expected by market traders, but we still saw significant volatility during afternoon trading that led to a sizable upward revision to rates.



30 yr - 1.86%







Mortgage Rate Trend

Trailing 90 Days - National Average

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Indexes Affecting Rate Lock



Federal Open Market Committee (FOMC) Statement

The post meeting statement and press conference with Chairman Powell all but guaranteed the Fed will raise key rates for the first time in over three years at their March 15-16 FOMC meeting. While this wasn’t really a surprise, it still seemed to draw a strong reaction in the markets. Analysts now expect the Fed to make at least three increases of a quarter point this year alone. They also confirmed the plan for winding down their balance sheet after the first rate hike is made.



Economic Stimulus News

What may be hitting bonds hard was a bit of information in the statement that indicated the Fed will be directing future purchases towards Treasury securities, signaling a move away from mortgage bonds. That news appears to be driving the selling in mortgage bonds as it raises liquidity issues in the market once the Fed stops buying them altogether. Removing a significant buyer from the market is likely to create an imbalance in the supply side of the market down the road. Accordingly, bond traders reacted negatively once the news hit the wires.




Both stocks and bonds made significant moves lower following today’s Fed events. The Dow closed down 129 points after being up over 400 points at this morning’s update. The Nasdaq closed up 23 points, giving back nearly 300 points of this morning’s rally. The bond market is down 26/32 (1.86%), which should cause widespread upward revisions to rates totaling somewhere between .500 and .750 of a discount point from this morning’s pricing.



New Home Sales

Today’s sole economic report was December's New Home Sales data at 10:00 AM ET. The Commerce Department announced a 12% jump in sales of newly constructed homes last month. This was stronger than expected, indicating growth in the new home portion of the housing sector. Fortunately, this report carries a low level of importance, preventing much of an impact on today’s rates.



Gross Domestic Product (GDP)

Tomorrow has a couple of high-profile economic releases that we will be watching, starting with the initial quarterly Gross Domestic Product (GDP) reading at 8:30 AM ET. Tomorrow's release is the first of three we will get for the 4th quarter. This data is so important because it is considered to be the best measurement of economic activity. The GDP itself is the total sum of all goods and services produced in the United States and its’ results usually have a major impact on the financial markets, leading to noticeable changes in mortgage rates. It is expected to show the economy grew at an annual rate of 5.6%. A much weaker reading would be great news for the bond and mortgage markets. However, a larger than expected increase, indicating the economy was stronger than thought, will probably fuel bond selling and lead to higher rates tomorrow.



Durable Goods Orders

Next is the important Durable Goods Orders report for December, also at 8:30 AM ET. It helps us measure manufacturing strength by tracking new orders at U.S. factories for products that are expected to last three or more years. These are also known as big-ticket items and include things such as airplanes, appliances and electronics. The data is known to be quite volatile from month-to-month, so a large headline number isn't necessarily a concern. Forecasts are calling for a decline in orders of 0.5%. Even though this an important report, a slight variance likely will have little impact on tomorrow's mortgage pricing because of the large swings that are common in the data. A much larger decline would indicate weakness in the manufacturing sector and be good news for mortgage rates.



Weekly Unemployment Claims (every Thursday)

In addition to those two reports, we also will get last week’s unemployment figures at 8:30 AM and results of tomorrow’s 7-year Treasury Note auction at 1:00 PM ET. Neither of these items are likely to cause noticeable movement in rates, but carry the potential to contribute to the day’s momentum in trading.

Float / Lock Recommendation

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Lock if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.

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