Floating is not a good option
The mortgage bond market is again falling sharply, driving mortgage interest rates to their worst levels of the year. Outside of a short moment in May of 2015, we haven’t seen mortgage interest rates this high since back in September of 2014. When you consider that just a couple weeks ago mortgage interest rates were near all-time lows, this change comes as quite a shock to those in need of a home loan. If bonds happen to break down just a bit lower, we could be in for another significant drop in prices before bonds can stabilize. Given the strength of this downward spiral, it seems at this point to be a likely event in the near future.
The one hope to help slow this painful experience is a Federal Reserve interest rate hike. Based on recent comments by multiple Fed members, it sees that is a foregone conclusion pending any dramatic negative economic news that may hit the wires between now and when they meet next in December. Hopefully, it will be a big enough shock to the market to drive investors out of an irrationally high stock market and back into the mortgage bond market. We must wait and see how this plays out.
Once again, floating an interest rate is not a good idea. We maintain our locking bias.