24 Sep No benefit to floating
Mortgage bonds are at a pivotal point, as they are currently battling overhead resistance. Coincidentally, the 10 Year Treasury Note yield is also at an important level, sitting right on top of the 100 day moving average. With the stock market running higher, bonds are under pressure so far this morning as money is flowing from the bond market into the stock market. This trend will likely continue throughout the day, which will likely cap gains and prevent bonds from breaking above resistance.
Purchase mortgage applications were again reported to be down this week, but only a marginal decrease of 0.3% from the week prior. However, more shocking was the year over year report showing that home purchase applications are down 16% from this time last year. The dramatic reduction could be a result of a lack of affordable inventory, with both short sales and foreclosure transactions being a much smaller part of the overall home sales. Buyers are having a difficult time finding acceptable homes at reasonable prices. This is leading many potential homebuyers to new construction where they can get the home they desire at a comparable price to the existing market.
With mortgage bonds not showing the strength to break above support, we see no benefit in floating with loans needing to close right away. This could just be a healthy pull back in the bond market as bonds take a minute to regain some strength so they can make another run higher. Mortgage bonds have formed an upward channel which could carry them higher in the days ahead. However, much of how things play out in the bond market will depend upon the stock market which is showing signs of improvement. Watch closely and look for bonds to make a more dramatic move one way or the other in the days to come.