Mortgage Rates Continue to Drop

Mortgage rates continued pushing into the lowest levels in more than 6 months after a the congressional testimony from Fed Chair Yellen this morning.  Financial markets and mortgage lenders were cautious ahead of the 10am speech, but improved afterward. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios is now at 4.25%.   

The bond and mortgage markets improved as we noted they would this morning.  Mortgage Backed Securities (MBS) prices were better today than the 10yr note price changing. Investors continuing to get out of tech stocks and continuing to move into fixed income as the outlook continues to worsen on the future of the economy. We have been warning for weeks that the economy is not what CNBC likes to say, the network is overloaded with bullish guests now. Part of the decline in rates is the geo-political news but that is not all.  Housing sector weak, new job creation is feeble at best---the quality of most of the new jobs would not feed a family very long, and Q1 will likely be negative when we get the Q1 GDP revisions later this month.  The world is increasingly moving into bonds and away from stocks, new buying is as thin as a shaved piece of ham on a deli sandwich.  Q1 will likely be negative, most of The Street will ignore it because it is old news and weather hampered; true enough, but so far the warmer weather hasn’t shown much economic improvement.

If we were only looking at mortgage rates, the combination of time spent under the 2014 range and the distance below the previous lows is looking pretty promising. If we look elsewhere, however, to some of the other factors that can impact mortgage rate momentum, it still makes sense to be cautious. One of the factors is the situation in Ukraine that's thought to be keeping some extra downward pressure on interest rates in the US.

In summary, it appears rates are trying to make a move and break out of the current range that has existed all year.  Much of the improvement is due to the geopolitical risk that Ukraine is creating which could unwind quickly and unexpectedly which makes floating risky.  Tomorrow we get our last treasury auction for the week, and it is not uncommon for rates to rally after the new supply has been absorbed by the markets. At this point, I think floating is the way to go.