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Rates in 2017 Are Looking A Bit Like Rates in 2016

January 16, 2017

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A popular pithy quote, attributed to Mark Twain, goes, “History doesn’t repeat itself, but it often rhymes.”  Whether Twain actually uttered this observation is debatable; the truth behind it isn’t. We frequently see current patterns that resemble patterns in history. 

The year 2016 is now history, but what we see today resembles what we saw a year ago: We refer specifically to patterns in interest rates. 

Fifteen months ago, we saw the yield on the 10-year U.S. Treasury note and most mortgage rates rise into the December 2015 meeting of Federal Reserve officials. At that meeting, Fed officials raised the target range on the federal funds rate 25 basis points. Soon after the fed funds rate was raised, the yield on the 10-year Treasury note drifted lower, and so did most mortgage rates.

We see a similar pattern occurring today. Interest rates and mortgage rates rose into the December 2016 Fed meeting. Fed officials again raised the range on the fed funds rate 25 basis points. Since the Fed raised the fed funds rate on Dec. 14, the yield on the 10-year Treasury note has drifted, and so have most mortgage rates. 

The 10-year Treasury note holds considerable sway over mortgage rates. As the yield on the 10-year note goes, so go quotes on 30-year fixed-rate loans. Not surprisingly, quotes on the 30-year mortgage loan have drifted lower. 

A couple weeks, we surmised that mortgage rates would develop a lower range and stick with that range at least until the Jan. 20 presidential inauguration. So far, we’ve been fairly accurate.

We also surmised that it would be a while before we saw a sub-4% quote on a 30-year loan. We might have to retract our supposition. Fed officials appear to be getting cold feet on rate increases.

The recently released minutes from the December 2016 Federal Reserve meeting suggest that even one increase this year might be pushing it. CNBC reports the minutes show that a gradual “three-step” increase is in doubt. Many Fed officials raised a number of risks that, if realized, could cause the Fed to change direction.  

Could we see a 3.5% quote on a 30-year loan by July? We can no longer discount the possibility. If we do see it, history will not only have rhymed, it will have repeated.  

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