Mortgage bonds are dangling off a cliff, as they fight to hold on to their 50-day moving average. This is a big deal for mortgage interest rates, as a decisive break beneath this critical level will spell trouble. The answer to this will largely depend upon what happens in the stock market. Given that stocks have been on an incredibly strong path for the past 3 ½ months, where they have made up two years of gains in this short time, it would be difficult to bet against the stock market at this time. A correction in the stock market is also likely in the near term. Could the time be approaching soon? For the sake of interest rates, that would be the best-case scenario.
The Mortgage Bankers Association released their estimate of mortgage application for the past week. The results showed that home purchase applications were at their highest level in 9 years! This is both a good and bad thing, as we all know what happened after 2010, when purchase applications were at the current levels. Since history tends to repeat itself, I look for levels to mirror those that occurred just before economic challenges followed. Is this another sign to be aware of or something to celebrate? Only time will tell.
This is a difficult time to state an opinion on locking or floating. If rates deteriorate from here, things will get ugly fast. However, although it is possible for the 50-day moving average to hold, I will still suggest a locking bias. The risk of the upward move in rates is just too strong.