Mortgage Mike’s Daily Rate Commentary

The mortgage bond market remains strong, with bond prices holding up against a critical ceiling of resistance. If prices break above this level, we will see a nice improvement to mortgage interest rates. Although I’m confident this will happen, it’s a matter of when. When this does happen, we will see mortgage rates fall and continue to improve over time. This means that now is not the time to pay closing costs for a mortgage or to buy out mortgage insurance. Choose a no-cost loan and pay monthly mortgage insurance. There is a strong likelihood that a loan closed now as a no-cost mortgage will have a refinance opportunity in the months to come.


The Pending Home Sales report (which measures signed contracts to purchase existing homes), showed a decrease of 1.5% from the prior month. Given that this is measuring existing home buyer activity at the beginning of the strong summer months of home sales, this is clearly a sign of slowdown in the housing market. When you combine the timing and the fact that this is after mortgage interest rates took a nice drop lower, this is truly shocking to see. Although most experts aren’t anticipating a slowdown in the housing market, I don’t align with the common belief. The Fed may only see a 27% chance of a recession in the next 12 months, but I see the percentage as being much higher than that. Although housing doesn’t always fall during a recession, a slow down at minimum can be expected. This reality should at least be factored into a homebuying purchase decision.


Although I do believe bond prices will break higher, I can’t confidently advise floating until this in fact happens. If you choose to float, do so carefully. If you aren’t a risk taker, you should lock while we are matching the lowest rates have been in roughly 16 months.

Mortgage bonds continue to sit just beneath the ceiling of resistance that matches the highest levels mortgage bond pricing has been at since January 2018. This significant level represents the point at which bond prices must cross for us to see mortgage interest rates improve from current levels. As we have discussed in recent updates, a break above a critical trend line is the exception and not the rule. Therefore, it seems more likely that we will see bond prices have their next move taking a step lower. However, I do believe that at some point we will see that level breached. Since it’s impossible to say if or when this will happen, we need to make decisions based upon what history tells us will happen.


The pace of home value appreciation across the country continues to slow, with the Case-Shiller Home Price Index showing that U.S. home prices increased at a 3.7% clip year over year. This is down from the 3.9% rate that was posted the month prior. Given that we are heading into the stronger summer buying season when price gains generally advance more quickly, this is a concerning reading on the overall health of the housing market. Although many people believe home values will continue to climb based on the strength of the labor market, I’m not one who shares this belief. I believe that a weakening labor market is in the works, which generally leads to a slowing housing market. But regardless, housing is a long-term investment that has always come out on top in the long run.


Unless bond prices can muster the strength to make a climb higher, I will maintain a locking bias.

Mortgage bonds have started the day flat, but still sitting just beneath the ceiling of resistance that represents the lowest mortgage rates have been since January of 2018. The significance of this critical level shouldn’t be understated. If bonds happen to muster the strength to break above this level, we will see mortgage rates improve to levels not seen in a long time. However, since break outs are the exception and not the rule, odds of this happening are not great. Basic bond trading guidelines point to a drop either today or in the days to come. This means that mortgage interest rates right now are likely as low as we will see them in the near term, making this an exceptional opportunity to take advantage of.


Today is a short trading day, as markets will close early ahead of the Memorial Day weekend. They will also be closed on Monday. With limited economic data on the books for today, we will see markets trade based on the technical picture. After the stock market has taken heavy beatings the past few days, I wouldn’t be surprised to see President Trump release a Tweet that helps encourage stock investors to confidently step back into the game. With the power President Trump has to move the markets, it sure would be great to have advance notice of his Tweets on the subject. In today’s world, we are always just one Tweet away from a market moving event.


Given the current status of the bond market, and my belief that we will soon see stocks move higher, I will maintain a locking bias.

Mortgage bonds climbed back up to the top of their trading channel. This is great news for mortgage interest rates, which are now once again matching the lows we saw earlier this year. The question of whether bond prices can break above this level remains to be answered. Since they have failed to pass this point multiple times in the past, odds are once again not in our favor. As a result, we can anticipate that tomorrow will be a down day for mortgage bonds. However, in the event mortgage bonds do build the strength to break through, we could see mortgage interest rates improve to the next 1/8% better. That would certainly help stimulate the housing market which is failing to show the positive improvements most have expected to see. Given that we are on the brink of the typical best time of the year, numbers should be much stronger than they are now.


The US stock market is once again heading dramatically lower today. In fact, stock prices are in a similar situation to bond prices, but in the opposite. Stock prices have their 200-day moving average not too far beneath current levels. Therefore, we can anticipate a turnaround just around the corner. If stocks happen to break beneath this critical level, that would coincide with a nice improvement in mortgage bond pricing. But once again, the odds of that happening are slim. We will likely see stocks improve and mortgage bond prices worsen by tomorrow or at least within a couple of days. I’m not sure the world is quite ready to accept the reality of the future.


Given the predictions listed above, we will maintain a locking bias.

Not much change in the mortgage bond market once again today, with bond prices remaining trapped within the tight trading range that has been in place for several weeks now. The overall news driving both stock and bond prices continues to be mixed, which is creating a push-pull environment that doesn’t give investors a clear direction on a future path. Surprisingly, recent reports on the housing market showed continued weakness developing. Given that we are heading into the strong summer purchase season, this isn’t the news many in the housing industry were hoping for. As I’ve stated for months, I see weakness growing as we play out the final stage the current economic cycle.


Today we will receive the Meeting Minutes from the most recent Federal Reserve FOMC meeting. This will provide some insight into thought process of each individual voting member, as well as the temperature of the Fed overall. With the recent volatility within the U.S. economy, my hope is that the Fed will provide a bearish tone that leans toward a future rate cut. Considering that most everyone was expecting rate hikes just a few short months ago, this would be a wild swing for the market to digest. Regardless of the tone of the statement, I continue to believe the next move the Fed makes will end up being a cut. I believe they should admit the last hike was the wrong move and make the change quickly.


Until bond prices can show the strength to break out of the current trading range, I will maintain a locking bias.

Mortgage bonds remain in the same position that they have been trapped within for several weeks now. Given that the U.S. stock market has fallen sharply in this time frame, it’s discouraging to see that bonds still have not found the strength to make a break higher. With stocks once again heading sharply lower today, that would normally help improve mortgage bond pricing, as investors sell stocks for the haven of the bond market. But once again, despite this, mortgage bond prices are down. Eventually, bonds will grow tired of holding in the current range and we will see upward pressure on mortgage interest rates. So, let’s hope we see some strength in the bond market quickly develop.


Today is a quiet day for economic reports, so the markets will trade heavily based on the technical outlook. Given that that isn’t looking good for bonds right now, we need to prepare for a negative price change for mortgage interest rates. We have some important housing data that will be released starting tomorrow. Given that we are entering the hot summer purchase market, I anticipate the results of the data will not be helpful for mortgage rates.


With bonds remaining under pressure, we will maintain a locking bias.

After topping out at a nearly 18-month high in bond prices, bond investors have become skittish.  Although prices have not yet made any dramatic drop, the writing seems to be clearly on the wall as to what the current sentiment is.  As bond prices try to gain a better understanding of where to head from here, we need to realize that passing up on the current opportunity to lock could be costly.  Since break outs are the exception and not the rule, we are more likely to see pricing deteriorate from current levels.  That would add upward pressure to mortgage interest rate pricing.  Unless there is economic news that scares the market, that will be the path of least resistance.


With today being a slow day for scheduled economic news, markets will trade heavily based upon the technical outlook.  Next week the economic news report calendar heats up, which will include an update on the status of the housing market.  The Existing Home Sales report will provide a critical look into the strength of the housing market.  Since the last report was measuring from March, I anticipate that we will see a strong increase in the numbers for April.  In addition, as we move into the summer purchase market, I expect this report will continue to improve over time.


Given the continued lack of strength in the bond market, we will maintain a locking bias.

Despite the U.S. stock market recovering some of what was lost in the past week, mortgage bonds are holding onto their gains. This show of strength is great news for the near-term direction of mortgage interest rates. However, bond prices are right now matching the highest levels we have seen in nearly a year and a half. Each time bond prices have challenged this level since, they have quickly been pushed back lower.  In looking at the charts, we can start to see signs of weakness. Since we are more likely going to see bond prices fall rather than continue to climb higher, we could now be at the best rates we can expect to see in the near term. However, if the “against the odds” break above the ceiling happens, we can expect to see rates continue to fall even lower. That would provide an incredible boost to the summer home buying season which is just around the corner.  Let’s plan for the worse but hope for the best.


This morning’s Retail Sales report showed that consumer spending is well below what the market was anticipating. The Headline number showed that Sales declined 0.2%. When you consider that the market was expecting to see a positive reading of 0.2%, this shows that the reality is far below expectations.


The Retail Sales report is one of the strongest gauges of the strength of the US economy. As many say, “As goes the consumer, so goes the economy.”  Therefore, the bond market is stronger on the news. Given that the bond market is generally more tied into the actual state of the economy relative to the stock market, this could help bond prices are they face the current battle over a nearly 18-month ceiling.


Unless bond prices can break above the current ceiling, we will maintain a locking bias.

Stocks are climbing higher today, which can be somewhat expected after yesterday’s tremendous fall.  The market’s volatility is again tied to the trade negotiations between China and the U.S.  Until a final trade deal is agreed to, we can expect to see this trend continue.  The concern with stocks moving higher is what this will do to the mortgage bond market.  Since mortgage bonds compete for the same investment dollars as the stock market, bond prices tend to fall as stock prices move higher.  Although we haven’t seen that happen today, we could see the strength of the stock market push bond prices beneath the critical level we have discussed the past couple of weeks.  If that happens, we will see upward pressure on mortgage interest rate pricing.


We are starting to see signs of a positive scholastic crossover in the 10-Year Treasury Note yield.  This is an early indicator of higher yields in the short term.  Although mortgage interest rates aren’t directly associated with the 10-YTN, mortgage bonds and the 10-YTN tend to trade in a similar pattern.  If yields on one move higher, we generally see the other follow suite.  With this early indicator pointing to higher yields in the near term, this means that we could see upward pressure on mortgage interest rates.  Since mortgage bonds have experienced a relatively flat move as stock prices have dropped, this means the market may not be ready for mortgage interest rates to take another step lower.


Given the indictors of higher yields in the near term, we will maintain a locking bias.

Stocks are once again falling hard as fears over a trade war continue to plague the market. It was just a few weeks ago when the stock market took a strong jump higher as investors believed a trade agreement was imminent. So, this turn of events is just a part of the cycle that we have been going through for the past year or so.


Today’s fears were sparked by a retaliation plan announced by China stating they would be raising tariffs against goods being imported out of China into the US. This is bad news for US consumers, as tariffs are essentially the equivalent of a tax hike. Since there will still be a demand for goods being imported, this will just raise the price that consumers in the US pay. That “tax” is highly inflationary, which is the arch enemy of mortgage bonds and will add upward pressure to mortgage interest rates. However, given that the stock market will likely continue to suffer, that will help support more money flowing into the haven of mortgage bonds. Therefore, the net impact on interest rates is difficult to foresee.


At the end of the day, if China wants to achieve victory over the US, they have the power. All they would need to do is sell off their holdings of 10-Year Treasury Notes. That would cause so much pressure against the US dollar that it would most certainly create a recession. Since this would also hurt China, they may not use that as a weapon. However, some world leaders have been known to sacrifice their own people for victory or revenge. Let’s hope that doesn’t happen in this case.


Mortgage bonds are now above the critical ceiling we have identified the past couple of weeks. If bond prices can make a decisive break, we will then turn to a floating bias. But in the near term, the risk of floating is elevated. Now is a great time for some to lock.