Locking bias

The volatility in the bond market is increasing as anticipated ahead of the Federal Reserve updated policy statement due for release today at 12:00 p.m. MST.  Investors will be looking for the Fed to either confirm their last meeting’s statement that they anticipate 4 rate hikes in 2016, or to back off that ridiculous statement.  Based on current economic conditions, it seems more likely to have one or maybe two at the most in this year.  We can see the damage in the global economy following December’s rate hike, which was the first time we had a rate hike in 9.5 years.  Clearly, the market’s performance following the hike isn’t the reaction the Fed anticipated.  It will certainly be interesting to see how they correct this in their statement today.

December New Home Sales, which measures signed contracts on new homes in the month of December, was reported to be up at a 544k annualized pace.  This impressive number was much higher than the 500k anticipated, and was the 3^rd best read since 2008.  Further, November’s reading was revised slightly higher as well.  This is a great sign for new home builders as we approach the home buying months of spring and summer.  Further, it adds strength to the housing market by providing buyers the opportunity to build the home they desire in a real estate market where existing home inventory is low.  As long as the pace of new construction doesn’t move too much higher, the rate of growth should be sustainable for a while. 

The Fed statement could certainly hold the key in deciding the near term direction of mortgage interest rates.  Generally speaking, the days when the Fed speaks are not friendly for the bond market.  The safe play will be to have a locking bias.  If you choose to float into the statement, watch the markets’ reactions closely after the announcement.  Be prepared to lock if the bond market drops as a result.