If you choose to float, do so very carefully

After several days of losses, mortgage bonds experienced small gains yesterday.  So far today, bonds are higher once again.  This is great news for those needing to lock in an interest rate and for those considering buying a home soon.  There is some level of hope that bonds found a floor and can now begin the process of temporarily recovering some of their losses.  Bonds don’t follow a straight path down.  There are typically points in time where they recover up to 50% of their losses before continuing their run lower.  This could be such time.  If this is the case, we will experience a brief period of recovery followed by losses that will once again be significant.

The Producer Price Index (PPI) report for October was released this morning, showing that inflation on the producer level was tame.  The Headline number was unchanged for the month.  The Core Rate, which removes food and energy prices, fell by 0.2% on a month-over-month basis.  This will be followed by tomorrow’s Consumer Price Index (CPI) report that will show how inflation is doing on a consumer level.  This important report could set the tone for the near-term direction of mortgage interest rates.  If it shows a low level of increase, we could see rates continue to regain some of their losses.  However, if it shows a stronger than anticipated rate of growth, rates will likely move higher once more. 

With bonds stabilizing, it presents an opportunity to lock in.  If you choose to float, do so only if you are able to watch the markets closely.  If bonds begin to fall, lock in quickly.