Mortgage Rates Continue Recovering

The key stock indexes dropped today as the bond and mortgage markets improved. MBS prices however are unchanged this afternoon from when first pricing occurred this morning. Even though we continue to see some more recovery, the pricing became stagnant just after I submitted my morning report.  Volatility continues in both equity and interest rate markets.

The only report of consequence today was January wholesale inventories which came in a little better than anticipated, but with the revisions for previous reports, it was mainly a wash.  Treasury auctioned $24B of 3yr notes this afternoon and was met with solid demand.  Tomorrow’s $21B of 10yr note auction will be more impacting as it is the note that sets the direction of long dated rates including MBS prices.   Until Thursday there are not a lot of key data points this week.  The continual increase in the US dollar is getting some focus from stock investors concerned that the dollar’s strength will hurt forward profits.

Interest rates in Europe dropped today, moving our treasuries to follow. The near term outlook remains at best questionable, our technicals remain bearish.  If the recent decline in stock indexes continues rates will drop back further.  Right now I continue my wider forecast that US interest rates are not likely to increase as much as most analysts and economists expect. How high is out of my wheel house to forecast, it depends more on global markets and what the Fed is going to do.  Presently the general consensus is the Fed will start tightening in June, but I do not see it that way.  I cannot see how the Fed can increase rates when the US stock market is declining, but June is a long way off.  As of yesterday the DJIA and S&P have given back all of the gains this year, as of this afternoon now at a loss.

More support for the rate markets is that crude oil declined again today.   Another decline from current oil prices and the selling is very likely to resume taking the price down in another leg lower. If that happens, stocks are going to fall further and we will have another opportunity at lower mortgage rates. It is absolutely key now to prepare for the possibility of rate declines, preparing potential buyers and re-financers to be alert. Not likely rates will decline to the recent lows in early February, and those that believe they can pick the bottom are usually left in the dust.  I am reminding clients that market volatility is going to remain high in coming weeks. One week from today the FOMC meeting, the Fed will also release quarterly forecasts and Yellen will conduct her press conference next Wednesday at the conclusion of the meeting.

In summary, another day of recovery.  Rates/pricing still a little worse than before Friday's sell off, but it is encouraging to see pricing improve.  It is still too early to predict imminent, dramatic improvements on the way, but at least we are moving in the right direction.  Currently I am locking loans as the future can be too dark to predict – but I am still letting people if they want to float, do so with extreme caution.