Little Movement in Mortgage Rates

Mortgage rates moved a little bit today as it continued to pull back from yesterday's geopolitically motivated buying spree. Tensions in Ukraine had created a short term spike in demand for fixed income securities like Treasuries and the Mortgage Backed Securities (MBS) that most directly influence mortgage rates. Higher demand means lower rates.  The most prevalently quoted conforming 30yr fixed rate for best-case scenarios remains at 4.375%.

As we saw yesterday, that spike in demand led to moderate improvements in rates, but had already started fading by the end of the day. This morning simply continued in that same vein, resulting in higher mortgage rates. That said, the weakness has been small.  Weaker housing data helped to prevent further bond market weakness - bonds tend to improve when economic data is weaker than expected.

The 10yr note is cemented in a very tight range and has not really made a move in any direction.  Stronger economic data along with increased tensions yesterday in the Ukraine still has left little change in the rates.  The technicals are holding slightly bullish, but as noted a couple of weeks ago, in a tight trade like we have currently as they are not valuable as predictors.  Again, while we are hitting towards the highs in the market, I still believe as others have stated that the time is coming in the next month or two.  This present rally, while not a fool’s rally, is built very weak with bets that inflation will begin to increase to 2.0%.  Inflation has been predicted now for two years, and unfortunately there has not been enough demand from consumers and businesses that inflation cannot increase much.  No increase in inflation leads straight to economic decline. The longer a major shake out takes to engage, the bigger the decline in the stock indexes will occur.  I am not smart enough to say particularly when the selling will take hold, but was not astute enough to know when the housing bubble would blow – even though we all knew the loans that were being done were crazy!  We almost hit a depression when the bubble hit, and now the Fed and other central banks are way out on a limb with policies that have never been tried before – ever.

In summary, our rates/points combinations have been improving, despite positive economic news. This roller coaster is really moving and it can go up just as fast as it came down.  I am still suggesting to lock short term, but be extremely cautious if you decide to float.