"Yeah I'm Free, Free Fallin'"... Free Fallin" by Tom Petty
The old adage of "Stocks go down, Home Loan Rates go down" didn't work this past week.
Stocks started the week with the Dow Jones Industrial Average fallin' nearly 1,000 points through Tuesday.
Typically, as Stocks decline, we see home loan rates improve as the investment dollars find their way into Bonds. That was not the case this week. Bonds and home loan rates hardly moved.
Why? Despite the bad selloff in Stocks, nothing in the U.S. economy has changed, the labor market remains tight, wages are rising, and consumer confidence is high – these are headwinds to further improvement in rates. Remember, rates like bad news.
So, while we have seen home loan rates improve over the past few weeks, the gains may have reached their near-term limit.
Now we are going to watch whether Stocks enjoy a "Santa Clause Rally" to finish the year or if they continue to fall. If Stocks decline another leg lower, we will likely see some modest improvement in rates.
However, should Stocks bounce higher from here, it will likely be at the expense of Bonds and home loan rates could move higher quickly.
Bottom line: Home loan rates have improved nicely the past few weeks and while historically attractive, they are hovering at a near-term bottom.
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