Locking bias

Interest rates have reached a defining moment in history, with the 10 Year Treasury Note yield threatening to break out of a 35-year downward channel. The significance of this event should not be underplayed. When you consider what a mirror image of this playing out in reverse over the next 35 years would look like, the thought can make your stomach sink. It’s nearly unthinkable to consider an increasing rate environment and the impacts that would have on the mindset of homebuyers and consumers over an extended time frame. It would be a difficult situation for many middle-class families. Those who remember the 80s and the market interest rates of the time certainly can speak to this. 

Tomorrow is a big day for the financial markets, with the Federal Reserve likely announcing another interest rate hike after their Open Market Committee meeting.  With mortgage rates hitting highs not seen in nearly three years yesterday, any downward volatility could be detrimental to the near and long term direction of mortgage interest rates.  If mortgage bond prices break below current levels, they will be chartering waters not experienced in multiple years.  This makes finding a stable floor of support very difficult.  The next viable floor, although it was created years back, seems to be about 100 basis points below current levels.  That means rates could quickly jump another ¼% before finding support. 

Given the ongoing volatility, we will maintain our locking bias.