By Jann Swanson for Mortgage News Daily
Deja vu all over again?
Freddie Mac says economic growth is recovering from a weak first half of the year, the labor market is holding steady and Fed watchers are concluding that a rate hike will come in December; worldwide economic growth is weak and appears likely to get worse. The company’s economists add, “We’ve been here before … last year.”
The economy continues to sputter along and the housing market continues to be a bright spot although with “less room to run than in the prior few years.” Refinance-spurred mortgage activity is starting to slow as rates rise and that will persist into 2017 as the mortgage market becomes more purchase-dominated.
Freddie Mac’s Outlook for October closely mirrors predictions in the Fannie Mae forecast earlier this month with a prediction of full-year GDP growth of 1.6 percent and a slightly better rate of 1.9 percent in 2017.
The volatility in financial markets has increased this month with a prediction of full-year GDP growth of 1.6 percent after a quiet summer. Post Brexit, the yields on 10-year Treasuries fell to a record low of 1.37 percent on July 5 then bounced back, remaining between 1.45 and 1.65 from mid-July through the beginning of September.
Over the past month and a half yields have risen, reaching as high as 1.79 percent on October 12. As rates dropped so did the implied chances of a Fed rate like this year, to below 50 percent. Now it has risen to 67 percent.
Unlike Fannie Mae, which has long said there will not be a hike this year, Freddie Mac still expects at least one but points out that doesn’t mean mortgage rates will necessarily rise. That will depend more on global growth and worldwide bond yields.
The latter are now off their post-Brexit lows, but most remain below pre-Brexit levels with Japanese and Swiss bonds still negative. The International Monetary Fund recently lowered their outlook for global growth.
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