Anything is possible…

Mortgage bonds continue to make small gains and are now within striking distance of highs for 2014.  This puts 30 year fixed interest rates once again down to 3.625%.  The 10 Year Treasury Note yield held beneath the critical 2.22% level and now has clearance to drop further.  A continued drop in yield will be healthy for mortgage interest rates and could set rates up for a nice start to 2015.  That would also help fuel a stronger spring/summer purchase season for the housing market.  However, we must be mindful that projections for interest rates are expected to be in the 4.3% range by the end of March.  Therefore, this opportunity may be brief.

The Case Shiller Home Price Index for the month of October was reported at 4.5%.  This information is a bit dated.  However, it is still widely viewed as a reliable indicator of home prices.  Robert Shiller mentioned in his report that he expects home prices to average a 4.5% growth rate for the next 10 years.  Put into perspective, this would make a $200,000 home worth over $310,000 ten years later.  Given the current economic environment, a 4.5% growth rate in 2015 may be a bit of a stretch.

With mortgage bonds showing strength we see no immediate need to rush to lock.  However, we also see only small gains possible.  Therefore, the risk/reward of floating is not favorable.  If the stock market continues to weaken, bonds will likely benefit.  It will take something dramatic for bonds to break levels not passed in nearly 18 months.  However, anything is possible.