Moving Out of the Locking Bias

To no one’s surprise, the Federal Reserve raised short term rates for the third time this year.  In summary, Fed Chairman Powell stated that inflation was in line with expectations, with no “unpleasant” surprises.  Markets responded with stocks selling off a bit and the bond market moving to the green.  That’s a welcome relief for mortgage interest rates , which were sitting at their high’s of the last 7 years. In housing news, year over year home price appreciation “decelerated” for the 4th month in a row, meaning the rate of increase was positive, but at a slightly lesser percentage than the previous pace.  While the rate hike news is perceived as the main event, the after event Q & A with chairman Powell will be picked apart looking for insight about future monetary policy.

Mortgage bonds have been hovering at a pivotal point for the last 5 trading days.  They were at this point most recently just 4 months ago in May, but quickly reversed direction and interest rates moved off of the highs of the year.  While today is a positive sign given the fact that mortgage rates did not push to a new high, they are far from changing direction.  The only confirmation will be how the markets digest the details of Chairman Powells comments, and bonds don’t fall back in the rut that pushed rates up.  We will very cautiously move to a floating bias, but stand ready to change back to a locking stance if bonds show any sign of continuing the tumble downward.