Bond yields and mortgage rates have moved lower in January as fears of the Coronavirus impacting the global economy have increased. The 10 year Treasury yield started the month above 1.90% and heading into the last week of the month we're seeing yield drop below 1.65%. This is after the US and Chinese government signed the Phase One trade deal which was supposed to be a catalyst for a bond market sell-off and higher consumer mortgage rates.
The deal is signed and it seemed like the market did not even care which is a bad sign for the economy. The reason is that it must mean market participants don't think the trade deal will do much for the economy and it probably won't increase job growth.
Is It Temporary Or Will It Last?
Over the last fifteen years I've come to learn a few things about how the bond market and consumer mortgage rates react to certain situations. With respect to what we are seeing now, stocks selling off, bonds rallying and and as mortgage rates are low is usually temporary. I'm not saying mortgage rates are about to shoot higher but I think it's unlikely that we'll see significant moves lower and in time you're more likely to see a pop higher than a pop lower. And lenders have little incentive to lower rates even if bond yields continue to decline.
I definitely understand the desire to get the interest rate as low as possible but as an experienced mortgage professional I can tell you that most if not all the time the market usually snaps back. And most of the time that snap back results in a higher mortgage rate. So if you are looking to lock in a rate right now you really should not hesitate, especially if you are buying a home. And if you don't believe me just check out this article from MarketWatch.com. Granted it focuses on the stock market but rest assured the point it's making can also be applied to the bond market and consumer mortgage rates.
If It Is Temporary Then When Will It End?
That is hard to say but usually these evens have a shelf life of two to six weeks but that's not the important thing to focus on. What you should focus on is the fact that a reversal is all but certain to happen and when it does you'll be rushing to lock in but it could be too late. There have been some instances in which mortgage rates have moved .125% -.25% higher in a very short period of time. You go to bed thinking the market is stable and wake up the next morning to higher rates. The fact is, when mortgage rates move higher they move much faster when you it to moves lower. So rather than trying to time the market avoid the risk and lock in terms sooner rather than later.
Credit Scores:
Next summer Fair Isaac Corporation (the creators of the FICO credit score model) is releasing it's latest algorithm which may adjust some individual credit scores. According to some reports the new scoring model will put more emphasis on personal loans. Over the last three to five years the personal loan market has exploded and some few personal loans as risky. The exact impact of this new model will not be known until mortgage lenders start to adopt this new model which might not happen any time soon.
