Last night it was reported that the United States killed Iranian military leader Qasem Soleimani and this morning bonds are rallying including Mortgage Backed Securities. Does this mean the market is "cheering" the killing of another government's number two official? Absolutely not. The reaction in bonds reflects the concern investors have moving forward. In times of crisis (which this may turn out to be a crisis for the United States and those in the Middle East) investors buy bonds as a "safe haven" - a place to keep their money safe until the crisis is over.
So what does this have to with consumer refinance and purchase mortgage rates? Great question and here is the answer; when there is an international event that may have significant implications for the United States or a region in the United States has an interest Mortgage Backed Securities tend to improve as a result of US bonds improving. Because it's viewed as temporary it's important to note that the initial reaction will probably not result in significantly lower mortgage rates.
Important Economic Report:
Today we have the ISM Manufacturing report. Last month report came in at 48.1 and expectations are for this months report to come in at 49.0. A number below 50 shows contraction and a number above 50 shows expansion. The last time the report was above 50 was back in August when the reading came in at 51.2. Since then the report has showed contraction. Over the years this report has played a bigger role in terms of it's impact to Mortgage Backed Securities and ultimately mortgage rates. When these reports impact mortgage rates it can sometimes be seen immediately with mortgage rates moving lower (or higher) and sometimes the reaction takes a while as investors digest it's implications for the economy.
Another report out today is the Construction Spending report for November. This usually has little to no impact on consumer mortgage rates but does give some insight as to the health of the construction industry which is an important part of the economy. Last month the reading showed a decline of 0.8% and this month the market is expecting an increase of 0.3%.
Mortgage Rates and Conforming Loan Amounts:
Keeping in mind the above; mortgage rates are near their recent lows as we had into the weekend so the likelihood that we'll see further improvements from the escalation in US-Iran tensions is small. If the crisis were to get worse and extend for weeks or even months than yes we could start to see mortgage rates improve from escalating tensions between the two countries. Overall 30 year fixed mortgage rates remain the most attractive and also 15 year fixed mortgage rates.
Did you hear the big news?
Last month the government raised the Conforming loan amounts to a new high. Last year the maximum Conforming limit was $484,350 and for 2020 its been raised to $510,400. That is huge news for those living in high cost areas and will really help home buyers and home owners avoid jumbo loans which typically come with a higher interest rate than Conforming loans.
Next Week:
Next week is big for bond markets and mortgage rates. We not only have the escalating tensions between the United States and Iran we also have several important economic reports. How mortgage rates perform over the next 4-8 weeks could be decided next week or maybe not. Tensions with Iran could ease and these important reports could come in as expected which would probably result in a market that is similar to what we are seeing today.
