Locking Bias, but watch the market closely

Stocks have started the day sharply lower, with the Dow currently down 125 points and the S&P 500 down 13.8 points.  It’s important to note that the S&P 500 is once again below its 100 day moving average.  This is a support level that stocks prices have not fallen beneath for more than a couple of days in years.  A decisive break below this point that is able to sustain for more than a couple days would be a bearish indicator and could be the initial sign of a correction.  As we all know, a correction is long overdue.  It would also be a welcomed sign for the bond market, as it would likely drive a significant amount of money into the bond market as investors seek a safe haven for their money.  That would help drive mortgage interest rates lower, and could help stimulate additional activity in the housing market.  With housing stalling as of late, that would be a healthy boost to the market.

Tomorrow will be the release of the Fed Minutes.  As we have seen many times in the recent past, the minutes can have an adverse impact to mortgage rates.  We will be listening closely for any new indication of future rate hikes and overall tightening of Fed Policy.  However, at this point, we feel there will be fewer surprises, as we all know where each Fed Member stands in their views of the economy.

Core Logic released their Home Price Index, showing that home prices increased 0.3% from July to August and 6.4% year over year.  Although home appreciation continues to moderate, we are still seeing reasonable growth in home values that are more sustainable long term.  The future projections are for a 0.2% rise in home prices in the next month, and a 5.2% increase from August 2014 to August 2015.  This is a healthy growth rate, with a more reasonable rate of increase that won’t push too many new buyers out of the market too quickly.  As we have found in prior cycles, when growth rates accelerate too rapidly, homes become too expensive for many families to purchase.  Therefore, a more sustainable rate of increase is better in the long run.

Mortgage bonds moved up again this morning, pushing interest rates near their 15 month lows.  Each time in the past 15 months that bonds have reached these levels, they have been pushed lower.  Therefore, we will maintain our locking bias, as we feel the opportunity to lock at these levels is too good to risk.  If the stock market breaks lower, that could push mortgage rates down below 15 month lows.  However, there is no significant driver making that likely at the moment.  Should that process begin, we will switch to a floating bias.  Therefore, watch the markets closely as see what happens.  It would be nice to see mortgage rates take another step down!