Mortgage Rates Rides the Roller Coaster

Mortgage rates have gotten back on the roller coaster today as we are now going up and down after a poor economic report regarding Retail Sales and how it fueled demand for fixed-income investments like Mortgage Backed Securities (MBS) and Treasuries.  When demand for MBS increases, prices rise and yields (or "interest rates") fall.  As such, higher MBS prices allow lenders to offer lower rates.  Today's improvements bring rates a bit more than half way back to Friday's levels.  The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains at 4.25%. 

Better today but still going nowhere, either up or down.  Interest rates are finding very comfortable levels in the last few weeks, rates remain low and defying many who had forecast rates to be about 25 basis points higher by now. Ukraine is one reason rates are not increasing and the level of US interest rates compared to EU rates are still higher than in Germany (1.43% compared to 2.61% on US 1yr notes), Spain’s 10yr 2.89% with 25% unemployment, Italy at 2.94% with 11% unemployment.  Investors, regardless of the opinions and comments from those that argue that rates should be higher, are not listening and are even stepping into rates offered by countries that are standing on the edge of an economic cliff.  To the point that the ECB is going to lower rates when it meets in June. When compared against other sovereign debt US 10yr notes are still offering nice returns.

Nothing has changed in the bond and mortgage markets - the technical stuff we use continues to hold very slight bullish biases but still cannot break the granite wall at 2.58% on the bellwether 10yr note that sets the path for mortgage rates. While rates have stabilized at present lows the bond market has lost a lot of steam recently, however there is no rush to sell treasuries. It is Ukraine, the ECB ready to cut rates, higher US sovereign debt levels than other quality debt, and growing concern that the lack of inflation may hamper the slow economic recovery even more. All that said, we are careful here about floating

In summary, even though we had a nice little rally in pricing today on the heels of a pretty weak retail sales report, I still have a bias towards locking in these rates for borrowers closing within 30 days. But, for those with a longer time horizon to closing, patience could pay off. Some potentially market moving economic data remains as the rest of the week unfolds so be careful if you are gambling.