Mortgage Rates Surprise - Will It Continue?

Mortgage rates certainly surprised a number of us in the industry today as we saw them head towards their lowest levels this year.  Yesterday I talked about what some of the economist were thinking that there was (and still could be more to come) a correction in the market that will drive interest rates lower.  This wild ride today saw the stock markets and currencies take a massive turn toward safer-haven assets without any obvious catalyst. As of a result, the most prevalently quoted conforming 30yr fixed rate for best-case scenarios had been fairly well heading into the direction of  4.375%, but now is pushing that rate even lower towards the 4.25% range. 

Will it continue?   As some economists have been saying, the stock market is going to continue its high level of volatility with the trend towards lower stock index prices. The rate markets got a nice boost today on the equity market sell-off. The likelihood of further selling in stocks is high now.  It has been interesting to listen to various comments from equity market analysts that still are not willing to capitulate.  As long as the bulls are resisting the decline it is more likely to continue than rally.  Wait for everyone to become negative before a return to better levels will occur.

How low will the interest rate on the 10yr go with the stock market selling?  Presently the 10yr is testing its lows of the year. There have been three times since January until now when the 10yr has moved below 2.70% -  each time, regardless of the fundamentals the 10yr has quickly returned to 2.70% and above.  Is this time different?  We will have to wait and see -  if the economist are correct in their outlook that the DJIA will decline another 1000 points then we can and do expect rates will fall.   

There's never any way to know what tomorrow brings for financial markets, only generalities about risk vs reward. Those who do a good job of identifying risk/reward imbalances end up having the most successful hedge funds. But locking a mortgage rate is one decision based on a single facet of the market.  It really boils down to personal preference, and there's no wrong answer right now. That said, if you choose to float on the back of these strong gains, set a limit for yourself as to how much rates would have to rise before you'd lock to prevent further losses. Then be prepared for markets to turn right back around and head to lower rates.  The roller coaster is on the move again, but this time it is spiraling downhill than trying to go towards higher ground.  How is your stomach? 

In summary, we seem to have broken some barriers and the move lower today is strong. Bonds are in rally mode!  Stocks seem to be in correction mode and bonds benefit from the trade flows. This is happening despite the lowest unemployment claims in 7 years. This could be the beginning of the correction that some market experts have been expecting for a long time as I mentioned yesterday.  This would certainly lead to lower rates and more qualified borrowers. Floating seems like a low risk, high reward possibility.