07 Oct Locking bias
Bonds appear to be capped by an overhead resistance level that they have not closed above since last April. Combined with support at the 200 day moving average, this makes a sideways trading range of only 51 basis points. Therefore, mortgage rates will remain fairly stable until a direction is decided upon. Eventually, which could be as early as today, bonds will need to choose whether to break above resistance or beneath support. The final determining factor could certainly be the stock market, which is having a strong start already this morning. With the DOW Jones Industrial Average up more than 150 points, this will add pressure to the bond market today. We will have to see if this creates sufficient force to break beneath the 200 DMA. However, it is likely that the 200 DMA will hold, as breakouts are rare.
The Mortgage Bankers Association reported that Purchase Loan Applications increased 27% from the week prior and that they are up almost 50% from this same time last year! Although this is a very strong report, it is somewhat skewed by the release of TRID this week. Many mortgage companies pushed up loan applications to get them started ahead of the changes. However, there is still a group of applicants who are jumping in to take advantage of the lowest mortgage interest rates we have seen since April. This provides at least one more opportunity to achieve a higher sales price with a lower payment as a result.
With bonds trapped beneath overhead resistance, there is little benefit to float a loan that needs to close soon. Therefore, we will maintain our locking bias for now.