06 Aug Locking Bias
The stock market is currently sitting right on a significant support level at the 100 day moving average. If this support doesn’t hold, will likely see sharp drop lower in the stock market. A downward trend line is forming in the stock charts. If this trend takes hold and continues, it could mean more money flowing into the bond market. This would help keep mortgage rates low, as investors will be looking for a safe haven to park their money. The S&P 500 hasn’t made a convincing break below its 100 day moving average in more than two years, so this could be a pivotal point in the stock market.
The Mortgage Bankers Association released their Purchase Loan Application Data for the week ending 8/1/2014. It shows another drop of 1% from the week prior. Purchase applications haven’t been as strong as anticipated for the summer months. There seems to be an underlining weakness in the market. If stock prices continue to fall, it could help pressure mortgage rates lower. This would act as a stimulus to the housing market, as many who have current mortgage rates in the mid 3% range are hesitant to sell their homes and trade their lower rates for higher mortgage rates.
With mortgage bonds continuing in their sideways trading pattern, there is little benefit to float an interest rate. Therefore, we will maintain our locking bias as we wait and see what further developments occur in the stock and bond markets. With the stock market trading at its 100 day moving average, there is a chance that could act as a catalyst to push stock prices higher. This would come at the detriment of the bond market. Be careful at this critical juncture in the market.