Mortgage rates fell at a rate not seen for quite some time. While not falling all the way to 4.00 percent, the benchmark 30 year rate dropped to 4.12 percent from 4.19 the previous week, according to Freddie Mac’s weekly mortgage survey. Freddie also reported the 15 year rate fell from 3.36 percent to 3.30 while the 1-Yr ARM held firm at 2.42 percent.
It also appears the stock and bond markets might be returning to their traditional model. When stocks do well, rates do not and when stocks move lower, rates do better. This is a departure in recent memory when stocks and bonds worked in tandem, primarily as a result anticipating when the Fed will be less mortgage rate friendly.
The Fed interest rate stimulus known as the third round of quantitative easing or QE3 will end this month. Recent comments from the Fed confirms it will be more accommodative to the credit markets and more reluctant to raise rates.
The unemployment rate released earlier this month showed a relatively healthy job market, surprising economists with 248,000 new non-farm jobs. The headline rate fell from 6.1 percent to 5.9 percent. Wages were tame, leading investors to believe inflation won’t be a problem. While interest rates and bonds did well, the Dow finished the week around 16,500 while the S&P 500 and NASDAQ had their worst week in more than two years.
What to Watch for This Week
There will be several economic reports this week investors will be watching. Here’s what they are and why they are important:
Retail Sales: As its name implies, this report measures how much consumers are buying. Mortgage rates might climb it there is a surprise on the positive side, as it could signal an improving economy, which leads to higher rates.
Producer Price Index (PPI): This is a measure of what it costs to bring products to market. It is an inflationary gauge. If it costs more to produce goods and services, inflation might be coming, which is bad for mortgage rates. Analysts don’t expect much inflation on this week’s report.
Housing Starts: The housing sector is an important part of the economy. A surprising number of new homes being built could signal an improving economy, which leads to higher rates. Analysts expect around 1 million new homes to have started in September. A number higher than this could lead to higher rates.
Mortgage Rate Forecast and Lock Strategy
Overall, there is not an expectation of higher rates this week. The struggling stock market should suppress rates as investors analyze whether there is an economic downturn coming, or if this is just an expected stock market correction.
The 30-year mortgage rate in general are still holding within the 4.00 to 4.25 percent range for most mortgage applicants and this should hold true through this week.
While upward volatility is not expected, we can’t rule it out. Consumers who want to be safe should lock while rates are still at 16-month lows. For those looking for slightly better rates before refinancing should hold, as rates may dip this week, if the stock market continues to struggle.