Are Rates ready to finally make their move? Financial markets are out of patience…

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Over the past few weeks, we've increasingly witnessed a consolidation in bond markets. (That's a fancy way of saying interest rates have been less and less volatile.)  When we look at this on a chart, and if we draw lines resting along the highest and lowest interest rates, the lines converge on a single point.  More often than not, rates will break forcefully higher or lower before reaching that point. If the analogy works for you, think of this like squeezing a spring between your thumb and forefinger.  The space occupied by the spring gets smaller and smaller until one side slips.  The spring could launch in either direction.

As of last week's Jackson Hole Symposium (where the Fed often shares some more candid thoughts about monetary policy), interest rates could scarcely have been compressed any further. When the Fed Chair's speech was made, rates moved lower at first, but shortly thereafter, the Vice Chair framed that speech in a different context.  Basically, "Hey everyone! Yellen (the Fed Chair) just said we're going to hike rates in 2016!" is what was stated, and rates moved quickly higher in response.

However, additional comments from Vice Chair Fischer helped everyone calm down. The end of any given month also tends to be more rate-friendly, because certain investors are required to hold a certain amount of bonds for their official month-end reporting (higher demand for bonds equates to lower interest rates).

So as September began, rates moved higher immediately only to be sent tumbling back to the previous floor by exceptionally weak economic data on Thursday (ISM Manufacturing).  Then on Friday, the big jobs report came in below its forecast; something that would normally help rates move lower, or at least hold their ground. Instead, rates began rising back toward recent highs, suggesting that markets may be have simply decided "it's time" to break out of the consolidation pattern, regardless of the quality of the evidence.

Does all this Fed-related interest rate drama matter for the housing market? Absolutely! At first glance, it might not seem like housing would respond too much to interest rate volatility, but in the bigger picture, the correlations are undeniable.  Not only are rates, themselves, a factor, but market psychology can also have a bearing on the strength of the housing market. Incidentally, a longer term chart of the Pending Home Sales data that came out this week helps illustrate the point.

Apart from the home buyer tax credit distortions in the immediate wake of the financial crisis, the most notable changes in the Pending Home Sales Index have followed the major Fed policy developments. In 2013, the Taper Tantrum clearly took a bite out of sales, and then the Fed's rate hike rhetoric in 2015 aligned with the next salient decrease in activity.

The reality is, we are still experiencing historic low rates. Click Here for free options about how rates can help your situation or call me direct at 801.599.5363.

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