Mortgage Rates Head in a Positive Direction - Down

Mortgage rates got even better today as the floor we hit earlier this month is extremely close to that level.  A number of factors have contributed to this downward movement, but it is still unclear if it is truly justified or if other issues are in play.  We have finally moved down to 4.375% being the  most-prevalently quoted rate for the best scenarios. 

Janet Yellen completed her testimony today to the Senate Banking Committee.  Not much new but she reiterated the Fed is still on track to continue cutting monthly purchases of treasuries and Mortgage Backed Securities (MBS’s) and wants it over by this fall.   She did however keep the door open a crack “if there’s a significant change in the outlook, certainly we would be open to reconsidering, but I wouldn’t want to jump to conclusions here.”   As for the weather, “Unseasonably cold weather has played some role,” she said. “What we need to do, and will be doing in the weeks ahead, is to try to get a firmer handle on exactly how much of that set of soft data can be explained by weather and what portion, if any, is due to softer outlook.”   On the employment situation she stepped into what we have been saying, “the unemployment rate is not a sufficient statistic for the state of the labor market. There is no hard and fast rule about what unemployment rate constitutes full employment, and we will need to consider a broad range of indicators.”  She admitted the labor market is “far from complete.”

Treasury had one of its best weeks in months this week with the auctions.  The 10yr note, driver for MBS rates is at a 3 week low as political turmoil in Ukraine boosted demand for safety and investors weighed prospects for the U.S. economy.  Meanwhile the stock market is holding well and most of this afternoon the S&P traded at an all-time high based on its close - and it did close at a new high. Stock investors mesmerized by earnings holding well even though bond investors are questioning the impact of the weather on the data reported so far this year.  Bond investors don’t appear to be that optimistic about the recovery as is the equity investor. It is a difficult to accurately assess now as money is still moving to safety in treasuries with the Ukraine situation still at a boiling point.  We don’t think the Ukraine issue will be long-lasting in terms of the fear factor that has pushed treasury prices higher.  It will remain a serious geo-political issue but the fear of major military confrontation is likely to dissipate in a week or so.

In summary, data continues to disappoint and global drama in Ukraine is helping as well. I do believe data will continue to disappoint and things might get uglier in Ukraine before they get better both of which are good for mortgage rates. With the gains of the week, I think you should strongly consider locking if you are within 30 days of closing.  I do not see rates rising very soon, but if you want to float, I would do such with extreme caution.