Sentiment Drops after Yesterday’s Report

Good morning everyone!

Some contradicting news from yesterdays report came in this morning. Yesterday, we went over Citigroup’s Panic / Euphoria Model and found that todays market is about 3x the baseline euphoric market. After growing for the last three months, the Fannie Mae Home Purchase Sentiment Index showed over a 2% drop in purchase sentiment. Now, there are two sides to this argument. One side claims that housing affordability and the overall market will be driven down by the massive amount of appreciation that we have seen this year. They think that we are well down the road leading to another housing crisis. The other side believes the bears are not seeing the full picture. Yes, we have had a lot of appreciation; however, affordability remains relatively stable due to the massive decrease in mortgage rates from last year. They claim that the housing market has further to climb as down payments will be marginally higher because a house costs more but the principle and interest payment will remain flat and decrease in many scenarios.

The stock market is up this morning after the UK approved and began distributing the Pfizer COVID vaccine to its general population funded by their National Heal Service. As we hear more news about the rollout of the vaccine in the UK, we expect volatility in the stock market that will trickle down to the MBS market. There is great opportunity for this news to push MBS pricing down.

Mortgage backed securities are up slightly from yesterday after jumping off their 25 dma. We still have a treasury auction and an inflation report which both have potential to push mortgage rates higher. Because mortgage backed securities sit in a wide channel, we are holding a locking bias going into this big news week.

Have a great day!