Mortgage Rates at Best Levels in Three Months

Mortgage rates did manage to move lower again today – which is now at the best levels we have seen in the past three months. Volatility was what I stated in my last blog on Friday, as I stated that this week was going to be wild and it was right from the very beginning.  Before the market even opened, we saw huge changes for the negative on all the indexes, with the 10yr dropping down to 1.91%.

This is the correction in US equity markets that was expected.  It should not have been such a shock, although the speed caught most by surprise as these kinds of moves usually do. The over the top bullish bias had eroded over the last couple of months with no gains on the indexes since the beginning of July. Hysterical comments also usually accompany these situations. This not a crisis, this is getting the market back to appropriate levels based on the realistic assessment of global and domestic economies.

Today is a near term blow-off.  Expect more equity market selling over the week and choppy interest rates but the worst of it is likely over in terms of panic movements like we had today. The best of it for mortgage rates also likely not going to gain much the rest of the week. Now what will the Fed do in Sept? In this kind of volatility with four weeks before the FOMC meeting it is a toss-up in the minds of stubborn economists, but unlikely the Fed will move until at least December and that is also a huge ‘guess’ now. I guess my prediction all along is becoming more of a reality – nothing until 2016.

TAKE A DEEP BREATH AND MAKE NO DECISIONS NOW; THESE KIND OF MARKET REACTIONS DO OCCUR PERIODICALLY; LET MARKETS SETTLE DOWN. The wider perspective remains bullish but unfortunately interest rates have the potential to increase 15 to 20 bps on the 10yr before the models would turn negative, and MBS prices have the possibility to decline to 103.50 (currently 104.20).

In summary, the net effect is still positive--just not nearly as positive as you might expect when you see the news about how much stocks lost today.  Given that further improvements will continue to require a bigger, nastier supply of global financial drama, no one could argue with locking rates right now.  That said, it is also true that no one could argue that more drama is possible.