And They Keep Going Lower...

Mortgage and Lending with Peoples Home Loans NMLS 13530

Last week, we asked “how low can they go?” We find out this week that they can go lower.

Of course, we're referring to mortgage rates. The trend in rates remains downward sloping, which is no surprise. Over the past five days, the 10-year U.S. Treasury note chipped off another 15 basis points, which means the yield on this influential long-term lending benchmark is below 1.75%.  The rate on a prime conventional 30-year mortgage will hover two percentage points higher (give or take a few basis points) than the yield on the 10-year note.

Most of the national mortgage surveyors report best rate execution on a 30-year conventional mortgage below 3.7%. This is about it where it was this time last year. We see similar drops in the 15-year loan and, to a lesser extent, the 5/1-year ARM.

Lower lending rates have been good for business. The Mortgage Bankers Association's latest survey shows refinances up 16% week over week. A meaningful gain was also reported on purchase applications, which were up 7%.  When the MBA reports for this week, we expect to see a further increase in weekly activity.

Low rates are a nice stimulant, at least for the short term. But as we mentioned last week, we really don't like the idea of the 30-year fixed-rate mortgage hanging this low indefinitely. The problem is that low rates frequently come encumbered with discouraging economic news.

Indeed, that's the case. Stocks around the world continue to sell off; commodity prices continue to fall. Oil is the number one commodity everyone focuses on, and it has recently been quoted below $28/barrel. This is good news when we fill up at the gas station. It's less welcomed news for U.S. oil producers, many of whom are drowning in debt that they can no longer service.

Stocks and commodities are trending lower over fears the world's major economies – including our own – are slowing, and could slow to the point of recession. Investors, in turn, have taken haven in U.S. Treasury securities and other government debt. Bloomberg reports that $7 trillion of sovereign government debt, roughly 30% of all government debt worldwide, now yields a negative interest rate. This means many investors aren't even seeking a return; they're simply seeking a place to warehouse their cash.

So, yes, low rates are nice, but an improved economic outlook would be even nicer.  After all, we are one big inter-dependent economic family.  For now, it appears today's low mortgage rates will remain.




Date and Time
Consensus Analysis

Home Builder Sentiment Index


Tues., Feb. 16,

10:00 am, ET

61 Index

Important. Sentiment has stabilized and shows signs of improving as we head into the spring selling season.

Mortgage Applications

Wed., Feb. 17,

7:00 am, ET


Moderately Important. Falling rates have stimulated activity, though it remains to be seen if momentum can be sustained.

Housing Starts


Wed., Feb. 17,

8:30 am, ET


1.185 Million (Annualized)

Important. Housing construction and investment continue to be important economic drivers.

Federal Reserve FOMC Meeting Minutes ivers.

Wed., Feb. 17,

2:00 pm, ET


Moderately Important. The Fed isn't expected to deviate from its current monetary policy.

What the Yield Curve Is Telling Us

We introduced and discussed the yield curve and how it has historically been a reliable predictor of recessions last week. (In review, the yield curve is simply a plot of all the government securities – one-month through 30-years.)

We were interested to see how the recent drop in yields has impacted the yield curve.  Our concern was that the drops have been concentrated on the long-end of the curve – five years and out.  If that occurred, the yield curve would show signs of flattening. This wouldn't be desirable because it could portend bad things to come.

That good news is that with the exception of the one-month T-bill and the one-year T-note, yields have been relatively uniform in falling.  As we noted earlier, we would like yields to cease falling, because that would indicate expectations for more economic activity.  Sluggish activity remains an overhang.

That said, the yield curve looks healthy and normal. This suggests there is still reason to view 2016 with optimism, which we do. Though global economic activity has slowed in recent month, it appears a recession isn't imminent.


Posted by

Michael Dutra

Regional Sales Manager

Peoples Home Loans

Phone: (508) 372-9176

Cell: (401) 486-6894




Lending in ALL 50 States


NMLS 13530

Comments (2)

Hamilton Landon Real Estate - Apple Valley, CA
...Marketing your home like no one else will.

I thought you were talking about gas prices.  Just kidding. Great info.

Feb 17, 2016 04:40 AM
Certified Mobile Notary Signing Agent - Smith Mountain Lake, VA
Highest Ranked Certified Mobile Notary in Virginia

I only have two words for folks Michael Dutra ,   REFI  NOW !

Feb 22, 2016 05:14 PM