26 Mar Locking Bias
Mortgage applications for the week were reported to be down 3.5% this week, with purchase applications showing a year over year decrease of 17%. Of course, much of this slow down can be attributed to homes becoming less affordable as both interest rates and home prices moved higher. Durable Goods Orders were also reported this morning, showing a surprisingly strong 2.2% increase. While the market was only expecting a 1% increase, this shows that consumers are buying more goods such as cars than anticipated. Although a valuable gauge of longer term growth, the weekly figures can be quite volatile. Therefore, a longer-term outlook is a more healthy indication of reality. Also, there is a surprisingly parallel trend between the stock market and Durable Goods orders. They tend to rise and fall together. Right now the stock market is ahead of the Durable Goods trend, indicating that either Durable Goods orders will spike or the stock market is likely to pull back.
Mortgage bonds had a failed attempt to break above the 200 day moving average this morning. With the stock market appearing poised to challenge their all-time highs, there may be a headwind in the bond market as time wears on today. Also, if bonds do happen to make a break above the 200 DMA, there is significant resistance above these levels. This makes a strong move higher unlikely until there is news that helps boost bond prices higher.
With mortgage bonds starting the day with a strong move higher, rate sheets this morning should already have any improvement priced in. Considering the significant resistance above, and the strength of the stock market, we will have a locking bias today. It is typically best to lock when we are at the top of a trading channel than float. Right now, we are at a vulnerable point that has more of a tendency to push rates higher.