22 Oct Locking bias
Mortgage bonds have moved sideways for nearly two weeks now, with no significant gains or losses to speak of. However, bonds have moved sideways right to the bottom of the upward channel that has driven mortgage interest rates lower, fueling many people to consider refinancing or purchasing a home. If bonds break out of the upward channel, it will mean that mortgage rates have reached their lows in the short term, and could push rates a little higher as the stock market continues to rebound. This isn’t necessarily a bad thing for interest rates long term, as it gives bonds some time to build up strength before making another run higher. However, there is certainly no guarantee or way to accurately predict the future direction of rates.
The Consumer Price Index (CPI) for September was reported to be up 0.1%. This was hotter than the market’s expectation of 0.0%. Core CPI, which strips out food and energy, was also up 0.1%, which was in line with estimates. Year over year, both CPI and Core CPI were up 1.7%. This continues to be below what the Fed would like to see, and shows that inflation is not currently much of a threat to the near term direction of mortgage interest rates.
The Mortgage Bankers Association released Mortgage Loan Application Data for the week ending 10/17/14 this morning. Although refinance activity was significantly higher, purchase applications fell by another 5%. This is far below where the market would like to see purchase activity, and shows a continued slowing in the overall purchase market.
With the stock market continuing to break above overhead support in the stock charts, the recovery in the stock market is truly astounding. Stocks are no longer in a downward channel and have formed a very strong upward channel that is currently driving prices higher. This is creating a drag in the bond market and will likely cap any significant gains that could pressure mortgage rates lower. Therefore, we have a locking bias at this point, which will continue until we see strength build in the bond market.