Locking Bias

Existing Home Sales for the month of June show we are in a very strong housing market.  It was reported that Home Sales are now at a 5.49 million pace.  This was the fastest pace in 8 years, or since 2007.  Further, the median price was reported at $236,400, which is an all-time high.  This was an increase of 6.5% from this time last year.  This shows that we have officially gained back all of the losses incurred in the housing market fall.  Just as we saw when the stock market crashed, many homeowners who sold their homes when prices were at their lows are now stepping back into the market to buy.  For those who stayed in the market, congratulations.  You should be whole once more…

There is once again very little scheduled economic news to drive the markets today.  Therefore, the technical picture will likely drive the direction for both stocks and bonds.  Mortgage bonds are currently battling their 50 day moving average.  Since they have not been above their 50 DMA since mid-April, this could be a very difficult ceiling to break above.  Should bonds make a break higher, they have a lot of room to the upside.  That would help improve mortgage rates and help soften some of the rate shock many are experiencing as they now are looking to buy homes.  The 10 Year Treasury Note yield is also battling its 50 DMA.  If it is able to break lower, that would also help support the mortgage bond market.

Given the current state of the bond market, we must plan that bonds will not be able to break out of their channel.  The rule is that bonds will bounce off the top of their channel; the exception is that they will break out of their channel.  Therefore, the safe play is to maintain a locking bias while we hope for the best but anticipate the worst.