Little benefit to floating here

Mortgage bonds broke beneath the first layer of support this morning and fell down to the next level of support.  Fortunately, the second level held and bonds eventually bounced higher.  Having this level of support hold is good news for mortgage interest rates, as bond holders now have a higher level of confidence knowing the strength of the floor.  Fortunately for mortgage bonds, the US stock market weakened and moved lower.  This gave mortgage bonds the added strength needed to stop the fall.  However, once again we remain in a position of risk in the market.  Bonds could fall again and we could see the support level fail.  We will have to wait and see what happens.

Housing demand continues to show strength, as evidenced by today’s slew of housing reports.  Home prices remained strong, but decreased slightly from 5.9% to 5.6%.  Any number between 5.5% – 6% is considered a Goldilocks scenario, meaning not too hot and not too cold, but just right.  This level of growth is considered sustainable and healthy.  The reports showed that there were 2.21 million homes for sale, which is down 5.8% year over year.  With a lack of supply being the issue, homes are selling more quickly.  Homes are now on the market for an average of 34 days, compared to 40 days last year.  This supports strong growth in home values, at least for the near term.

With mortgage bonds still hovering near the floor, the risk of floating continues to remain elevated.  We seem to be in a tight sideways channel.  Unless bonds are able to make a strong break higher, there is little benefit to float.