Bonds Flex Their Muscles

Mortgage bonds continue to sit just beneath the ceiling of resistance that matches the highest levels mortgage bond pricing has been at since January 2018. This significant level represents the point at which bond prices must cross for us to see mortgage interest rates improve from current levels. As we have discussed in recent updates, a break above a critical trend line is the exception and not the rule. Therefore, it seems more likely that we will see bond prices have their next move taking a step lower. However, I do believe that at some point we will see that level breached. Since it’s impossible to say if or when this will happen, we need to make decisions based upon what history tells us will happen.

The pace of home value appreciation across the country continues to slow, with the Case-Shiller Home Price Index showing that U.S. home prices increased at a 3.7% clip year over year. This is down from the 3.9% rate that was posted the month prior. Given that we are heading into the stronger summer buying season when price gains generally advance more quickly, this is a concerning reading on the overall health of the housing market. Although many people believe home values will continue to climb based on the strength of the labor market, I’m not one who shares this belief. I believe that a weakening labor market is in the works, which generally leads to a slowing housing market. But regardless, housing is a long-term investment that has always come out on top in the long run.

Unless bond prices can muster the strength to make a climb higher, I will maintain a locking bias.