This Week's Market Forecast

Now that Washington D.C. has gotten our government up and running again, and the fear of defaulting on our debt has been pushed off until after the new year, where does that leave mortgage interest rates?

1)  Talk of tapering has all but disappeared

   In September, the markets were driven on speculation of Fed tapering back the purchases of Treasuries and MBS that are part of QE3.  The fear of tapering helped to drive interest rates up, with concern that actual tapering would lead to even further mortgage rate increases.  However, the government shutdown is expected to have a strong slowdown effect on our economic recovery, which has pushed back all talk of tapering.  Added to that is the transition next year of Fed Chairman from Ben Bernanke to Janet Yellen, which will also delay talk of tapering.  This is good for mortgage interest rates. 

2) There will be a flood of economic data releases

   Expect intraday volatility as many missed economic reports will be released now that the respective government departments are back to work.  Although September data points are not likely to be seen as affected by the shutdown, the data isn't likely to garner as much credibility as usual with traders as the markets try to assess how serious the shutdown's impact was on consumers and future job growth.  This could cause volatility with mortgage interest rates.

3) The government shutdown is expected to stunt the economy 

   Many economists feel that the government shutdown was bad for the economic recovery.  Just how bad though has not been calculated yet.  Regardless, when the economy stumbles, that always bodes well for MBS (Mortgage Backed Securities) and the bond market in general.  Until we see that the economic recovery is back on track, it relieves pressure from mortgage rates.  This is good for mortgage interest rates. 

 

This week we will be dealing with MBS pressing up against the 102.00 Resistance Level, as well as the release of economic data that was not released due to the government shutdown.  There is no reason for us to see a large increase in rates, but we may see an increase of .125% to .250% this week if the 102.00 Resistance Level holds.  However, if we can convincingly break above this level, we may find better interest rates on the other side.     

There is risk to floating right now, but also potential reward. The best course of action is to stay in contact with your Mortgage Loan Professional to watch the market in real time to stay a step ahead of lender repricing and market trends to protect your mortgage rate.

 

- Michael Corboy

www.specialtyfinancialmtg.com