Locking Bias

The Case-Shiller Home Price Index for the month of January was released this morning showing a year over year increase of 13.2%  However, upon taking a closer look you notice that the 20 City Index was down -.1% from December to January.  This is the third straight decline in a row, and does not speak well for the current trend of housing.  Any time you have such a strong increase to home prices, but only a 1.7% increase in income, the trend is not sustainable.  At some point, as homes become less affordable, the rate of increase needs to slow or even detract.  However, a small pull-back in home prices may be what the market needs to get buyers back in the market, as they were just 12 short months ago.

Consumer Confidence came in much higher than anticipated this morning this important figure is one we watch closely, as it shows the consumers’ willingness to take risks and buy.  As consumers feel more confident about their financial futures, they typically spend more, which helps strengthen our economy.  As the economy improves, mortgage rates will move higher.

Following yesterday’s losses, stocks are having a strong day today.  So far this hasn’t had much of an impact in the bond market, as mortgage bonds are holding flat so far today.  Yesterday, mortgage bonds touched on the 200 day moving average and were quickly pushed back down.  With the significant amount of resistance overhead, potential gains and opportunities for lower rates are limited.  Therefore, we will have a locking bias to start the day, as we see a greater chance of rates deteriorating than we do of potential improvements.