Mortgage rates thrown a curveball in 2016

With the Federal Reserve finally raising rates in December, you would have expected the economy and stock markets to be humming along and rates to be climbing. However, stock markets are off to their worst start since 1970. The slowdown in Chinese economic growth and the crash of oil prices has caused investors to shift their allocations out of stocks and into the safety of Treasuries. As a result, interest rates have taken a sharp dive and we find the yield on the US 10 year note trading below 2.0%. Clearly not the Federal Reserve’s desired result.

In addition to cheap gas prices, mortgage rates are significantly lower. According to the Mortgage Bankers Association, mortgage applications were up for the second week in a row. The mortgage applications index rose 9% with refinances increasing 18.7%. The average rate on a 30-year mortgage dropped to 4.06% from 4.12% the week prior. Those rates should continue to fall with the yield on the US 10yr note in sub-2.0% territory now.

We don’t expect a turnaround in the markets anytime soon. China’s economic challenges are going to be painful for some time as they continue to crush the equity markets.  Crude oil also continues to hit new lows while straining the earnings of oil companies and oil-producing economies around the world. The current futures contract for crude oil is trading at $27.00. In light of this economic news, the next Federal Reserve rate hike becomes less likely with many people believing the December rate hike was ill-advised in the first place.

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