22 Jan Very carefully float, but watch so close…
As anticipated, the US stock market is making a strong comeback. After hitting a significant floor of support, investors decided to jump back in to take advantage of the discounted prices offered in the market. However, this by no means indicates the stock market is out of the woods yet. As long as the Fed holds the false possibility of 4 rate hikes in 2016, investors will be nervous and volatility will continue. Next week’s Fed rate policy announcement gives the members of the Fed an opportunity to correct their mistakes. We’ll have to see if they make the right move or not. Failure to do so could be the catalyst for further decline in the market. Although that would be a great thing for mortgage interest rates, it could have economic consequences that are dangerous to many.
Last month’s Existing Home Sales report was reported at a 5.46 Million Unit pace, which is an increase of 14.7% from the previous month. However, the numbers for November were down heavily due to the implementation of TD+RID guidelines. Therefore, this needs to be taken with a grain of salt. The big news is inventory levels, which continue to drop. Currently, there are only 1.79 million homes for sale on the market in the US. This is down 3.8% from a year ago. With the supply and demand balance in play driving home prices higher, this is supportive of another strong year for home value appreciation. We must be careful when values rise too quickly. History has shown the impact that eventually has on our overall economy.
Mortgage bonds are currently trading in a wide range. At this point, it is too early to say if this stock market move higher will be sustained or if it is just a head fake. In the meantime, we need to be careful if floating an interest rate. With the damage done to mortgage rate pricing already, if you are able to watch the markets closely, go ahead and float. However, if pricing deteriorates and we lose a battle with the 200 day moving average, lock immediately.