Mortgage Rates May Fall Even Lower

How low can mortgage rates go?

It seems like mortgage interest rates keep falling to new lows, largely thanks to a struggling economy.

The 30-year fixed-rate mortgage fell to 3.56 percent with an average point of 0.7 for the week ending July 12, down from 3.62 percent the previous week, according to Freddie Mac. At the same time, the 15-year fixed-rate mortgage dropped to 2.86 percent with an average 0.7 point, down from 2.89 percent from the previous week. This time last year, the 30-year fixed-rate mortgage averaged 4.51 percent, and the 15-year was at 3.65 percent.

A poor jobs report for June helped decrease long-term Treasury bond yields and mortgage rates. Only 80,000 jobs were created, not enough to make a dent in the 8.2 percent unemployment rate.

Homebuyers and current homeowners, as well as mortgage professionals, are probably wondering if rates can drop even more. Homeowners may be wondering if they should put off their mortgage refinance in a bid to lock into an even lower interest rate.

Wait for Lower Rates?

Home buyers might be thinking about delaying a home purchase for another year a few more months to wait for a better rate. Perhaps they think home prices will go down even more, and they figure they’ll be able to buy a larger, better house if interest rates decline a bit more.

Here are some reasons why mortgage rates could drop even more.

Bond spreads. Mortgage rates are higher than usual when compared to Treasury bonds.

Mortgage rates, typically based on Treasury bond yields, are usually about a 1.7 percentage point higher than the 10-yield Treasury bond yield. But recently the difference between mortgage rates and those bond yields, or the spread, been has more than 2 percentage points higher.

The euro zone. The ongoing euro zone debacle, which shows no signs of ending, could prompt investors to put even more of their money into Treasuries. That would drive both Treasury yields and mortgage rates even lower. European leaders appear to be dedicated to austerity measures that have proven to be a failure.

Drastically slashing public spending and raising taxes in an effort to decrease countries’ debt have decreased government revenues and worsened recessions. Recession in Europe will probably be a drag on the U.S. economy, as Europeans will have less money to buy American goods.

Plus, financial markets will probably continue to fear that break up of the euro zone will create a financial crisis that spreads to this country. Many European banks are highly interconnected with the U.S. financial system, and our fragile economy remains vulnerable in this integrated financial landscape.

Quantitative easing. The Federal Reserve might pursue another round of quantitative easing, a so-called QE 3, in which it purchases large amounts of bonds in an effort to drive down interest rates. Although only a few Fed board members now advocate more easing, other members say they will support it if economic conditions worsen.

The Fed has already extended its Operation Twist – selling short-term bonds and buying long-term bonds in an effort to drive down long-term interest rates – through the end of the year.

China. A slowing Chinese economy could export more economic troubles. The signs of an approaching economic meltdown are clear, notes an article in the journal, Foreign Policy. Chinese businesses are obtaining fewer loans. Interest rates have been cut. Manufacturing output has tanked. Imports are flat, and GDP growth projections are down. Real-world signs, like fire sales of government property, falling pork prices, and wealthy Chinese moving their money overseas, and incidents of social unrest, are evidence of a faltering economy.

Consumers Benefiting from Low Interest Rates

While low home loan rates show the feebleness of the global economic recovery, homeowners benefit by being able to refinance at much lower rates. If home loan rates are not at record lows, they’ll probably stay pretty close. The average 30-year fixed has stayed below 4 percent for 16 weeks, while the average 15-year fixed has remained under 3 percent for seven weeks, according to Freddie Mac.

But then again, anything is possible. It’s possible that the world economy will unexpectedly rebound and euro zone leaders will suddenly agree on a comprehensive solution to their fiscal crisis. Instead of waiting for mortgage rates to drop even more, home buyers and homeowners should lock into a low mortgage rate when it’s in their best financial interest.


Mortgage Market Update

Last week was fairly boring, though it did get interesting towards the end.  One thing that never seems to amaze me is the two-faced types out there, even among the “gurus”, when it comes to forecasting mortgage rates.  I mean, look at how many (especially those that simply regurgitate what the rate alert services say) said to lock your rates the week prior, then come back and say floating sometimes pay off.  Well, it paid off really well if you had been following my advice and had not locked when they were saying to lock.  Even today, I am hesitant to switch stances and I said why in my weekly radio show.

Last week, as I mentioned, was mostly boring.  Treasury Auctions started off well with the 2-year and 5-year T-Note auctions going well, then the 7-year fizzled a bit.  Things heated up and MBS prices broke to new recent highs, followed by the beginning of a corrective move, all in the last two days of the week.  New Home Sales started the weak off with a little optimism about the housing recovery and the Case-Shiller HPI showed some gains in prices, adding more optimism.  Consumer Confidence was still weak and the Beige Book showed more on the unusualness of the economic recovery and all favored MBS prices and mortgage rates pushing lower.  MBS Prices bounced off their 10-day moving average and headed higher as a result.  They continued their push higher with the Jobless Claims report and despite a marginal 7-year T-Note auction.  They even gapped higher, mostly due to dips in stocks, on Friday but the GDP report didn’t help any.  Then came the Chicago PMI and Consumer Sentiment that sent a shock through the markets and stocks turned the corner and MBS prices began their dive.

Now we head into the week with MBS prices continuing lower after today’s data continues to be unfavorable.  But things could change back to good, or be strong enough to break the trend with the data that lies ahead this week.  Just take a look…

  • Monday:  ISM Manufacturing Index (10:00), Construction Spending (10:00), Ben Bernanke Speech (10:15), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
  • Tuesday:  Motor Vehicle Sales, Personal Consumption Expenditures Index (PCE – 8:30), Personal Income (8:30), Consumer Spending (8:30), Pending Home Sales (10:00), 4-week T-Bill Auction (11:30)
  • Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), Treasury Announcements (9:00), ISM Non-Manufacturing Index (10:00), Crude Inventories (10:30)
  • Thursday:  Jobless Claims (8:30), Treasury STRIPS (3:00), Money Supply (4:30)
  • Friday:  Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Hourly Earnings (8:30), Average Workweek (8:30), Consumer Credit (3:00)

As you can see, there is plenty of data that is going to drive mortgage backed securities and mortgage rates.  One of the main things that drives the markets is fear, the strongest emotion one can have.  The reason things are changing right now is that fear has been subsided some with last week’s Chicago PMI and Consumer Sentiment, coupled with this morning’s ISM Manufacturing Index.  Will it hold, or will fear grip the markets again with the remainder of data coming up?  That is the big question of the week and will be the deciding factor in the future of mortgage rates?

Looking at the charts, we see a ripple in the pattern, this time to the upside.  About two weeks ago, that ripple was to the downside, but worth noting.  We continue to hold above the rising 10-day moving average and so long as that holds true, locking is not likely to be the correct decision for those that have the time before closing.  Even if we dip below it, briefly, the current trend may not be broken.  The reality is that nothing has significantly changed, at least not yet.  Even stochastic indications, which remain in the overbought spectrum, are following the motions they have done for quite some time now, well over a month.  This move lower appears to be nothing more than a correction at this point in reality.  That being said, with the plethora of data coming in this week, if the trend is to be broken, this week would be the time to make it happen.

The bottom line is that even with the rise and subsequent fall in MBS prices (and dip/rise in mortgage rates) last week into today, the trend is still intact.  So long as MBS prices hold above their 10-day moving average, that trend will remain unbroken and there is no need to lock.  Any dip below that level may, emphasis on may, signal a trend reversal for the long run, so be ready if this happens.

Mortgage Market Update

It’s that time of week again, where we take a quick look back at what happened last week in the mortgage backed securities market and what lies ahead.  Last week’s report was omitted due to scheduling conflicts, which happens every now and then, but which will hopefully get ruled out in the near future.  Nevertheless, the week was full of false alerts, or at least premature at best, and proves the need to listen to the right people and different perspectives, especially if you don’t understand what is going on.

Looking back over the last week, there was hardly any data to be seen, though we continue to hear news that favors an economy that is beginning to weaken again.  Stocks entered into earnings season and rallied somewhat on good earnings reports, and may continue to do so this week.  There are even reports of improved forecasts in earnings, giving more optimism for the stock market moving forward.  Housing numbers, however, keep getting worse and the Fed is even starting to express concerns about where the economy is truly going, including Ben Bernanke whom has been right there in the spotlight beside Barack Obama in saying everything is going to be just fine.  The Treasury Department also announced its upcoming Treasury Auctions with $38B for the 2-year T-Note, $37B for the 5-year T-Note and $29B for the 7-year T-Note, for a total of $104B in medium term auctions.

As we get into this week, the Treasury Auctions will likely p0lay a big role in whether or not mortgage rates can remain this low, or even go lower.  Those auctions will start Tuesday along with the timing when solid data starts pouring in.  Data is still fairly light most of the week, but will end with somewhat of a bang on Friday.  Here is what is currently slated, keeping in mind that the Fed adds speeches as the week goes on…

  • Monday:  Chicago Fed National Activity Index (8:30), New Home Sales (10:00), 3-month T-Bill Auction (11:00), 6-month T-Bill Auction (11:00)
  • Tuesday:  S&P Case-Shiller HPI (9:00), Consumer Confidence (10:00), 4-week T-Bill Auction (11:30), 52-week T-Bill Auction (11:30), 2-year T-Note Auction (1:00)
  • Wednesday:  MBA Purchase Applications (7:00), Durable Goods Orders (8:30), Crude Inventories (10:30), 5-year T-Note Auction (1:00), Beige Book (2:00)
  • Thursday:  Jobless Claims (8:30), 7-year T-Note Auction (1:00), Money Supply (4:30)
  • Friday:  GDP (8:30), Employment Cost Index (8:30), Chicago PMI (9:45), Consumer Sentiment (9:55)

As you can see, there is not much data but there are some key reports and Treasury Auctions that can play a major role in keeping mortgage rates steady, bringing even lower mortgage rates, or even breaking the trend and sending them higher.  To get a better idea of what lies ahead, let’s take a look at the charts.

The charts are the most accurate way to forecast where mortgage rates are headed, though most people do not fully understand them and some simply don’t trust them or continue to have knee-jerk reactions to market moves.  This is why you need to seek guidance from the best and preferably a couple professional forecasters, especially if you do not understand the charts yourself.  Last week say two false rate alerts to lock which were only good for those that were closing last week.  Probably the best free advice you can get, at least free for now, is available at Florida Mortgage Daily.  Make sure you  are checking it out every day to avoid the false alerts.

As we look at the charts this week, we find that MBS prices have yet to break their trend sideways, even slightly up, leaving no real reason right now to rush to lock.  They continue to remain above their 10-day moving average and all other moving averages continue their climb.  Even stochastic indications have moved out of the overbought spectrum and allow growth.  That being said, the trend may not be able to hold if we do not continue to make gains in MBS prices and that means if mortgage rates don’t keep setting record lows, they will likely be about to turn higher.  Right now, things still look good, but that outlook could change by week’s end.

The bottom line for this week is again to keep watching every day, but there is no need to rush into a locking stance, and we may even see lower mortgage rates ahead.  If MBS prices drop below their 10-day moving average, it may be time to lock, so be prepared if they do and make sure you are following solid guidance and don’t get caught up in knee-jerk reactions to market moves.

Mortgage Market Update – July 12, 2010

Happy Monday morning to all and it is another bright, sunny day here in South Florida.  Unfortunately, things are not so bright in the mortgage backed securities market and exactly where MBS prices, and thus mortgage rates, are going to go could get very interesting this week.  Remember that last week I ended saying that the charts favored mortgage rates holding steady but things were changing, so we will get into exactly what has changed, if anything, in this week’s report.

Last week saw very little in the way of data, especially market moving data.  In fact, data and events were so scarce that technical factors and news played the role most of the week and that helped MBS prices keep from going anywhere.  We continued to see that the economic recovery is weakening and that is keeping strength in the “safety” investments, evidenced by strong short-term Treasury Auctions.  We continue to see a lack of demand for home purchases which points to a very weak housing market, which I have stated numerous times in the past.  And, of course, Jobless Claims continue to be high and do not look to be coming down significantly anytime in the near future.  Again, the Labor Department is not citing any issues that may be skewing this report, signaling that the numbers may be solid.  All-in-all, data continues to point in favor of MBS prices and low mortgage rates, but the charts are picturing something different.

As we get this week started, we kick it off with Big Ben (Ben Bernanke) speaking about how credit is needed to get the economy going, particularly small business credit.  Makes sense right, in an economy that thrives on people overextending themselves, they need to be able to do it again or the economic recovery is questionable.  As the week gets wound up, data will be rolling in and that, along with the Treasury Auctions announced last week, will likely shake the markets up this week, for better or worse.  Here is what we have already scheduled this week…

  • Monday:  Ben Bernanke Speaks (10:00), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30), 3-year T-Note Auction (1:00), Elizabeth A. Duke Speaks (5:15)
  • Tuesday:  International Trade (8:30), 4-week T-Bill Auction (11:30), 10-year T-Note Auction (1:00)
  • Wednesday:  MBA Purchase Applications (7:00), Retail Sales (8:30), Import and Export Prices (8:30), Crude Inventories (10:30), 30-year T-Bond Auction (1:00), FOMC Minutes (2:00)
  • Thursday:  Producer Price Index (PPI – 8:30), Empire State Manufacturing Survey (8:30), Jobless Claims (8:30), Industrial Production (9:15), Philadelphia Fed Survey (10:00), Money Supply (4:30), Jeffrey Lacker Speaks (7:15)
  • Friday:  Consumer Price Index (CPI – 8:30), Consumer Sentiment (9:55)

As you can see, there are some heavy-hitters coming up and plenty of other data to make waves in the markets once we get going.  We will not only be getting a look at how the economic recovery is going but also a look at the inflation side.  I still think inflation will be on the tame side, but any hint inflation may be coming back could rock the markets.  Hold on tight becuase it may be a bumpy ride ahead.

Looking at the charts, we see a sideways pattern has essentially developed over the last couple of weeks.  MBS prices cannot seem to make any additional moves higher, but they do not appear ready to turn around yet either.  Unfortunately, however, things have become a little more negative than last week and that brings to question what lies ahead.  Stochastic indications are still in the overbought spectrum, though have room to move higher.  MBS prices are still holding above their rising 10-day moving average and every moving average is still rising as well.  The negative comes in the fact we had a new high on Wednesday, which did not hold, and have failed to get back to that level as of yet.  If we fail to get back to that level, the charts will become somewhat bearish, meaning things may be about to turn around.

The bottom line this week is it is another day-by-day play sheet.  Mortgage rates are holding steady, but may not be able to hold these low rates much longer, maybe not even through this week.  Once again, I emphasize the need to follow my daily market commentary at Florida Mortgage Daily.  Also, be sure you are working with reputable mortgage professionals and not just a team of “marketers”.  Additionally, don’t get duped by mortgage myths.  To this extent, a group of mortgage professionals including myself have finally launched Mortgage Myth Busters today, which you can read a little more about on ActiveRain or by visiting the website.  Oh, and don’t forget to check out today’s radio show.

Mortgage Market Update – July 6, 2010

Good morning and as I stated in yesterday’s radio program, I have delayed this week’s report until today since the markets were closed yesterday and I wanted to give you a better view of what lies ahead.  Of course, flying in from Rio de Janeiro yesterday early morning certainly doesn’t keep one motivated from doing anything but sleep when there is no money-making business to be done.

Once again, let’s review the highlights from last week, though I will not dwell as much as I did on the show.  Last week we saw that the economy remains in recovery mode, though it is slowing down to nearly a snail’s pace.  We saw that housing prices went up, but with the huge drop in demand that is occurring now that the tax credits are gone, those prices will likely reverse course.  Inflation remains tame and likely will continue to do so for a while at least and the jobs market is far from looking good again.  In general, the data continues to favor mortgage backed securities and lower mortgage rates and the week started off nice, then fizzled and leaves questioning exactly where they will go.

OK, enough of the past and let’s get down to looking into what lies ahead.  We have spent just about every bit of data would could have last week, so this week is very light on data, just take a look…

  • Monday:  Markets were closed
  • Tuesday:  ISM Non-Manufacturing Index (10:00), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
  • Wednesday:  MBA Purchase Applications (7:00), 4-week T-Bill Auction (11:30), Treasury STRIPS (3:00), Narayan Kocherlakota Speaks (3:30), Jeffrey Lacker Speaks (7:15)
  • Thursday:  Jobless Claims (8:30), 3-year T-Note Announcement (9:00), 10-year T-Note Announcement (9:00), 30-year T-Bond Announcement (9:00), Crude Inventories (10:30), 10-year TIPS Auction (1:00), Consumer Credit (3:00), Money Supply (4:30)
  • Friday:  Wholesale Trade (10:00)

As you can see, there is not going to be much data to make MBS prices move this week, though Fed speeches Wednesday and the Treasury Announcements on Thursday could make some waves.  Most likely, however, is that MBS prices will move based on technical indications and on the latest headline news.

Unfortunately, the charts do not provide a clear picture as to where MSB prices will go this week as they show a lot of uncertainty in the traders’ actions such as the large Doji that formed on Friday after a Jobs Jamboree that should have helped them rally.  Friday’s pattern covered a range of 63 basis points, including piercing the first layer of resistance and hitting the second, but also dropping down to the support of the 10-day moving average before closing just 5bp lower than their open.  The good news is that is not overly surprising going into an extended holiday weekend.  Stochastic indications are still in the overbought spectrum and pointing lower at this time on the sow side, but appear to be attempting a turn on the fast scale, though also still overbought.  The moving averages continue their climbs across the board, but that also adds that the “rubber band” may not be able to get stretched much further.  And indeed, even today we are not seeing any real strength, begging to question if they can rally further or are they going to hover here, or even pull back.

The bottom line this week is that it is another day-by-day game.  The charts in general still lean in favor of lower mortgage rates, but the weakness being shown begs to question that it may be leveling off or even thinking of reversing course.  As I mentioned on the show yesterday, I favor locking due to the uncertainty of the situation, but don’t forget to follow my daily reports on Florida Mortgage Daily to see if things change before next week.

Mortgage Market Update – June 28, 2010

Bom dia!  Estou ainda em Rio de Janeiro, Brasil.  Well, last night the airplane had a part that needed to be replaced and they could not get it to the airport in time before we “timed out” for our flight home.  As a result, I have an extra day in Rio, which is not as good a deal as you might think.  Nevertheless, I get to do this report on time but I had to delay the radio show until tomorrow, so join me tomorrow at 11:00 for this week’s Mortgage Market Weekly.

Last week was a bit of a surprise as we saw mortgage rates push lower still, which no one I know forecast as the week began.  We did get a corrective move as well and that set up where we are now, and overall both moves emphasize the need to follow my daily updates, currently only at Florida Mortgage Daily, and not just the weekly post and radio show.  A lot of the reasoning behind the improvement rests in the fact the housing market sucks.  We saw Existing Home Sales drop 2.2% versus an expected improvement of 6.0% (not exactly sure what they were smoking by predicting this) and New Home Sales not only dropped 32%, but March and April (pre-tax credit expiration) were revised lower as well.  The FOMC Meeting announcement was mostly the same and gave a boost to MBS prices as well, but the Treasury Auctions were mixed with the 2-year T-Note doing well, the 5-year T-Note doing poorly and the 7-year T-Note seeing improvement.  Overall, economic data pointed towards the lack of even a modest economic recovery, though Consumers Sentiment improved slightly.  The swings in MBS prices last week are setting up what lies ahead for mortgage rates, which will likely be set in stone this week.

That’s right, this week, with all of its data, will likely make or break the back of MBS prices and low mortgage rates.  We started off already with the Fed’s favorite gauge on inflation, the Personal Consumption Expenditures or PCE, and guess what, inflation is still tame as I have been talking about recently.  But the fun won’t end today as data will keep coming all week, culminating with the Jobs Jamboree on Friday since this week ends in July.  Here is the current breakdown of coming attractions…

  • Monday:  Personal Consumption Expenditures (PCE – 8:30), Personal Income (8:30), Consumer Spending (8:30), Chicago Fed National Activity Index (8:30), 3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
  • Tuesday:  S&P Case-Shiller HPI (9:00), Consumer Confidence (10:00), 4-week T-Bill Auction (11:30), 52-week T-Bill Auction (11:30)
  • Wednesday:  MBA Purchase Applications (7:00), ADP Employment Report (8:15), Chicago PMI (9:45), Crude Inventories (10:30), Dennis Lockhart Speaks (12:30)
  • Thursday:  Jobless Claims (8:30), ISM Manufacturing Index (10:00), Construction Spending (10:00), Pending Home Sales (10:00), 10-year TIPS Announcement (11:00), Money Supply (4:30)
  • Friday:  Nonfarm Payrolls (8:30), Unemployment Rate (8:30), Average Workweek (8:30), Average Hourly Earnings (8:30)

As you can clearly see, there is quite a bit of heavy-hitting data coming our way as the week unfolds.  With MBS prices set to make another attempt on breaking their recent highs, this data (and the charts) could allow them to do exactly this.  However, data could also set up a trend reversal this week, so keep a close eye on each day as the week progresses.  The week is starting off optimistically for lower mortgage rates and a continued uptrend, but don’t drop your guard.

Speaking of the charts, they continue to look pretty good as all moving averages continue to move higher still.  In fact, the only real negative side is that stochastic indications are still in the overbought spectrum, but even those have room for MBS price improvement.  With a fairly solid retracement happening last week, the charts are giving MBS prices virtually a green light to push higher.  The question is whether or not data will support that move or bring them crashing down.

The bottom line for this week is to start off happy and in a “floating mood”, but be ready for anything as data will clearly play a large role in shaping the future as the week progresses.  The charts point towards lower mortgage rates and are currently being supported by data, but things could change, and quickly, as you well know by now.  I hope to catch you all on the radio show tomorrow at 11:00 and feel free to chime in any questions.  I will add more time just in case there are quite a few.

Mortgage Market Update – June 21, 2010

What an exciting week last week turned out to be and that will likely continue through this one as well.  Shortly after my delayed post last week and after airing my radio show, MBS prices tanked and caused all of those rate alert services to post lock alerts, though I never changed stances.  Things that make you go hmmm…  Well, again, it turns out I was right and MBS prices not only rebounded, but they pushed higher as I expected.

What exactly happened last week?  The week started off dull with nothing to stir the markets, however we saw mortgage backed securities push higher after their retracement last week.  Tuesday saw much of the excitement as MBS prices pushed higher, then reversed course and dove (hence the rate alerts to lock), driven by the heated battle between bears and bulls in the stock market, the bears winning at the time.  Then, the data started coming in and favored mortgage bonds throughout.  I correctly stated inflation would remain tame in the data and we continued to see weakness in the economic recovery and even the Treasury Announcements of the upcoming 2-year, 5-year, and 7-year T-Notes could not keep MBS prices down.  Friday was absent data and with their run, MBS prices began displaying their weakness, creating a change in the charts which I will get into later.

This week again starts off light and then heats up, though this time it will be quickly.  We will see the release of the Fed’s next rate decision, which could be interesting with the growing dissent among them.  We will see more data on the housing market and the economy, along with those Treasury Auctions which may be in for a change as well.  Here is the current list of scheduled data and events…

  • Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:30)
  • Tuesday:  FOMC Meeting Begins, Existing Home Sales (10:00), FHFA House Price Index (10:00), 4-week T-Bill Auction (11:30), 2-year T-Note Auction (1:00)
  • Wednesday:  MBA Purchase Applications (7:00), New Home Sales (10:00), Crude Inventories (10:30), 5-year T-Note Auction (1:00), FOMC Meeting Announcement (2:15)
  • Thursday:  Durable Goods Orders (8:30), Jobless Claims (8:30), 7-year T-Note Auction (1:00), Money Supply (4:30)
  • Friday:  GDP (8:30), Consumer Sentiment (9:55)

As you can see, the main attraction for the week is the Fed decision on Wednesday, but Treasury Auctions and some data will be playing a role in the direction of mortgage rates as well.  Looking at the charts and the upcoming data and events, we can expect more excitement, though this time it likely will not be in favor of low mortgage rates.

As you all likely know, I am a big “chart man”.  The charts this week are not looking the same as last week by any means, though some positives do remain and they are slightly skewed.  For starters, stochastic indications have moved into the overbought spectrum slightly and are turning lower at the moment.  The 10-day moving average has flattened out and that is the first time doing so since the middle of April.  With this morning’s drop-off, MBS prices have formed a peak that is lower than their last and failed to break resistance again.  The other moving averages still look good, but they “lag” more due to their time frames, so it remains to be seen just how negative things will get.  Currently, we can hope for a bounce higher off their 25-day moving average, though a drop below this level may merely be setting up a sideways pattern.  If MBS prices drop below their recent valley, roughly 102.12 on the 4.5% coupon mortgage bond, then we likely have a full trend reversal in play.

The bottom line for this week is that we likely have seen mortgage rates as low as they are going to get for now.  The pattern has turned negative, though it might be signaling a sideways pattern and we will have to wait longer to be sure.  The one thing that appears definite right now is that we are no longer in an uptrend.  Protect your clients now by locking them if you haven’t been and don’t forget to check my daily updates at Florida Mortgage Daily for any changes before next week.

Mortgage Market Update

Greetings to all!  This weekend was my recurrent flight training, which occurs every 9 months (+/- 1 month), and is full of good and some bad.  The bad parts is the schedule is always hectic, including up to nearly 9 hours of classes, classes starting on the day you fly in, and you fly out right after your checkride.  The good news is that it hones my skills as a pilot as I get to practice all of those things you don’t want to see, but sometimes happen, when you have passengers in back.  I also get to see some friends I rarely get to see these days, which fills up the little bit of free time, hence the last bit of bad, the lack of ability to post on the mortgage market.

That being said, let’s dive into this delayed post.  Last week played out much like expected, albeit with the assistance of the monthly mortgage bond rollover (-34bp).  We saw the charts develop a nice retracement pattern, followed by the next leg higher, and we appear now to have a solid leg to stand on.  The pattern is still forming, but it looks good enough to change stances on again.  Treasury Auctions last week created much of the movement, with them coming in fairly strong.  There was a lot of Fedspeak last week and plenty of doublespeak included, but one point that stands out is the fact the Feds are becoming more divided on when to raise rates.  Remember, I have been saying mortgage rates will likely rise toward the end of the summer, though they are not directly linked to the Fed Funds Rate.  Retail Sales was certainly not good, though Consumer Sentiment rose slightly.  Looking back, data was not surprising and there were no “shocks” like the jobs report the prior week, thus the new pattern is forming, and quite nicely.

This week has already started, so I am not going to dwell too much into what lies ahead, because you probably know.  Here is the week’s calendar of events, including yesterday’s in case you missed it…

  • Monday:  3-month T-Bill Auction (11:30), 6-month T-Bill Auction (11:#0)
  • Tuesday:  Empire State Manufacturing Survey (8:30), Import and Export Prices (8:30), Housing Market Index (10:00), 4-week T-Bill Auction (11:30)
  • Wednesday:  MBA Purchase Applications (7:00), Housing Starts (8:30), Producer Price Index (PPI – 8:30), Industrial Production (9:15), Crude Inventories (10:30), Charles Plosser Speaks (2:15), Ben Bernanke Speaks (5:45)
  • Thursday:  Consumer Price Index (CPI – 8:30), Jobless Claims (8:30), Leading Indicators (10:00), Philadelphia Fed Survey (10:00), Treasury Announcements (11:00), Money Supply (4:30)
  • Friday:  No data; Quadruple Witching

As you can see, the data plays are light at the beginning, but really heat up as the week draws to a close, namely Thursday.  Friday is a Quadruple Witching Day, which sometimes draws volatility as traders close out positions, which may carry over into the mortgage bond market.  MBS prices will likely follow their pattern for the next day or so, but the question will be can they break even higher, or will we see that level hold?

Looking at the charts, as I mentioned, they look nice.  Stochastic indications have dropped out of the  overbought spectrum, giving room from MBS prices to move higher.  We saw a solid retracement of the overall rise, strengthening this current leg higher.  We continue to see every moving average pushing higher, all signs of strength.  The problem is that it takes even greater moves higher for mortgage rates to even edge lower, so that is a point to be well aware of.

The bottom line for this week is to float out of the starting gates (and even today).  Keep an eye on data as it begins to flow and be ready in case the top layer holds again and turns MBS prices lower.  The good news is that data could be strong enough to break MBS prices higher and send mortgage rates even lower if that data comes in favorable.  It will be an interesting week and we will see a solid pattern by week’s end in all likelihood.