Mortgage rates are worse compared to my last ‘rate update’ on December 20th.
In case you live under a rock, lawmakers in Washington DC came together at the 11th hour and passed a half-baked budget compromise. The only significant permanent changes to the tax code are extending the Bush-era tax cuts for middle class Americans, “patching” the Alternative Minimum Tax, and allowing tax rates to rise on high income earners (which only raises $42 billion according to the Congressional Budget Office).
Important issues such as entitlement spending, federal spending sequester, and various tax breaks were “punted” down the line which means ongoing uncertainty in the financial markets.
Stocks rallied upon the passage of the budget deal which helped to pressure interest rates higher. Also contributing to the small increase were the minutes released from the Fed’ last monetary policy meeting. In those minutes it was revealed that Fed officials discussed when they might cut back on monetary stimulus such as the purchase of bonds (treasury & mortgage-backed). Without the substantial demand from the Fed in the bond market yields are almost certain to move higher.
In the near-term technical signals suggest pricing on mortgage rates might improve slightly. Looking down the road mortgage rates may also benefit from uncertainty over the impending debt ceiling which is expected to be reached in February. However, over the long-run the outlook for interest rates looks bearish. I fully expect mortgage rates to be higher at the end of this year than they currently are.
Current Outlook: near-term floating bias, long-term locking bias