Safe play will be locking

The highly anticipated reading on inflation was released this morning, with CPI (Consumer Pricing Index) coming in at an annualized rate of 2.1%.  This matched last month’s reading, showing that there has not been an increase in the rate of inflation in the last 30 days.  Although still higher than the Fed’s target number of 2%, it was encouraging to see that inflation is not yet a major concern, at least at the moment….  Since CPI measures inflation at the consumer level, it is a significant contributing factor to the direction of mortgage rates.  With higher energy costs, the fear was that inflation would make a much stronger gain.  Investors breathed a sigh of relief at the release of the report, with mortgage bonds jumping higher in price on the news.

Existing Home Sales were reported to be up 2.6% at 5.04M units.  This was higher than expectations of 4.99M units, and was the first report in nine months to be greater than 5M.  Median Home Prices were reported at $223,300.  This reflects an increase of 4.3% year over year.  The slowdown in appreciation is likely due to an increase in inventory, which is up 6.5% year over year with 2.3 million homes currently up for sale.  Overall, the housing news was positive.

Freddie Mac published its 2014 housing market outlook.  They explained that after a disappointing first half of 2014, they expect home sales to accelerate for the remaining of 2014.  This was encouraging news, and provided hope that our slowing housing market will be stronger moving forward.

Stocks are pushing higher, once again, at the cost of mortgage bond pricing.  However, bonds are still trading above their 25 and 50 day moving averages.  After testing these floors earlier today, mortgage bonds made an unsuccessful attempt to move higher.  However, they are now back in the red, but above their lows of the day.  The stock market will likely add continued pressure to mortgage bonds today, giving very little incentive to float.  We will take the safe play of a locking bias.