29 Jul Locking Bias
Both mortgage bonds and stocks are off to a higher start this morning. Today is the kickoff of the two day Federal Reserve Meeting. We will learn what they discussed tomorrow afternoon. Although there is no chance of a hike in short term interest rates; it will be interesting to hear their comments about inflation, future rate hikes, and future purchases of mortgage backed securities. Although purchases through Quantitative Easing will soon come to an end, they continue to reinvest interest payments received from their mortgage portfolio as well as payoffs when homeowners refinance their mortgages. Combined, this adds up to a significant amount of bond buying each month, roughly $10 Billion. This is a benefit to interest rates.
In housing news, the Case Shiller Home Price Index for May reported an increase of 9.4%, which was below expectations of 9.9%. Because the information tracks homes that closed in the month of May, it is a bit dated, but still widely viewed. These figures highlight a housing market that is still healthy, but less robust in appreciation growth than the past couple of years. In an interview following the report, Robert Shiller stated that he believes home values have another 10% increase before we see a correction.
Consumer Confidence for the month of July was reported to be at 90.9. This is the best reading since October 2007, and much higher than the expected 85.5.
With mortgage bonds in a sideways channel, there is little benefit to consider floating an interest rate. Therefore, we will maintain our locking bias as we wait to see if bonds can muster the strength to make a move higher.