Mortgage Rates at Critical Juncture

Mortgage rates remained stagnant today even though the market tried to push them higher.  We are at a critical juncture on which path the market will take us. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios is still at 4.375%, but is pushing 4.25%.

In stark contrast to Friday's frenzied market movements, today's activity was relatively subdued.  Those market movements--especially in Mortgage Backed Securities (MBS)--are relied upon by lenders in determining mortgage rates.  When economic data is stronger than expected, MBS generally lose ground, leading to higher rates.  While that was the case today, Friday managed to buck that trend in grand fashion, leaving some doubt as to where mortgage rates will find their next inspiration.

The 10yr note rate has declined for 4 days and today for the first time in two weeks is closing higher in rate.  It is a rare event that prices for treasuries and MBS improve that much without some backing and filling.  Traders and investors have to experience where near term support is able to hold and reversals before adding to positions regardless of the fundamentals.  My outlook for the week is for some price declines on MBS and treasuries.  The magnitude of slippage depends on the three amigos.  Technically the bond and mortgage markets are set up for retracements; momentum oscillators are at overbought levels.  It will take lot of additional increases in tensions in Ukraine, bullish comments about rates and comments from Yellen that the economy isn’t growing much, and/or very strong demand for Treasury’s auctions.  In the absence of any of that, look for rates to back up a little through the week.

In summary, now that the Employment Report is in the rearview mirror there is not much to get excited about today. However, we're still sitting at the bottom of this 2 month range we've been in, and while rates have been friendly of late, the fact they have not broken even lower from here makes me lean in favor of locking rates. If you have some time until closing (45 days or longer) you may be able to take a "wait and see" approach for now but be ready to pull the trigger if things move against you