Cautious floating bias, be on guard to lock however

The technical picture for mortgage rates are very favorable this morning, as both mortgage bonds and the 10 year treasury note both broke below critical levels.  This has been helped by geopolitical headlines following news that the USA had some very strategic airstikes and bombings in Iraq, as they fight terrorist organizations that are threatening genocide against a groupl of people trapped on a hillside.  However, there was some good news out of Russia, as it seems they are trying to use negotiation as a way to solve their conflicts.  Both of these have the ability to impact the markets.

Labor Unit Costs increased by 0.6% for the second quarter, which was lower than the 1.6% expected.  However, the first quarter’soriginally reported increase of 5.7% was revised higher up to 11.8%.  This shows that the costs to produce are going up.  This means that either profits must go down or prices to the consumer must increase.  The latter option is inflationary and negative to mortgage interest rates.

FICO just came out and reported that it will be easier to achieve a higher credit score.  It is easing its criteria on collection account, especially for medically related collection accounts.  This is very positive for the housing market, as it will allow more people to purchase homes.

With mortgage bonds improving, and with a very positive technical picture, we are going to suggest a cautiously floating bias.  However, be careful.  Geopolitical events tend to provide short term benefits to mrotgage rates.  With bonds now above an important ceiling, we are hopeful that lower mortgage rates will hold.