Is This the Bottom?

Last Week in Review: Is This the Bottom?

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

Let’s take a look at some of the “Bond-friendly” news from this 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 Expenditure Index (PCE), was reported at -0.1%, well beneath expectations. Inflation is like the tide that rises all boats — when it declines, like we are seeing, rates typically decline as well. That did not happen this 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.

What does this tell us? Have we reached the “bottom” in rates? Quite possibly.

Stocks ended April up 12%, the best month since the ’80s. At the same time, the 10-year Note yield, a benchmark for longer-term rates, has been unable to move convincingly beneath .60%. Both Stocks and the 10-year Note yield are forward-looking and appear, at the moment, to be ignoring the awful 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 this week was any gauge, it is suggesting they won’t.