Floating bias

Floating bias

Of all financial reports, there are two that will primary determine the direction of mortgage interest rates: The Consumer Price Index (CPI) and Gross Domestic Product (GDP).  This morning we received a reading on GDP for the fourth quarter of 2014 and it was surprisingly low.  While the markets were anticipating a reading of 3.2%, the actual report showed that our economy only grew by 2.6% in the last three months of 2014.  This was a significant drop from the 5% growth rate reported for the 3rd quarter of 2014, and not a great sign as we move into the typical slower months of the new year.

According to the Census Bureau, the US Homeownership Rate fell to its lowest level in 21 years and is now down to just 64%.  This is a negative sign if the downward trend continues.  However, it could also be a positive indication that many Americans will soon be stepping back in to the housing market.  It certainly could go either way.  With the younger generation not as committed to the value of homeownership this could just be the begging of a longer term trend.  On the other hand, with many Americans getting burned in the housing crisis and damaging their credit in a way that will not allow them to obtain financing again for a set period of time, many are now past the required waiting period and are now looking to purchase.  With FHA making their mortgage insurance premiums more attractive at the same times rates are near historic lows, I anticipate many buyers will find now a great time to step back in.

Mortgage bonds are now intersecting at the top of the sideways trading range they have followed and the bottom of the upward channel that has carried rates to near historic low levels.  They will be forced to make a decision to either make a move higher or break beneath.  Today’s GDP just may provide the strength needed to make the higher move.  We will take a carefully floating bias as we watch closely to see which direction rates will move.  If bonds fail to make a run above current resistance, we will quickly switch to a locking bias.