06 May We will favor locking today
Mortgage bonds are up a bit and stocks are down as we begin this quite economic news day. With the lack of economic news, technical factors become more important. mortgage bonds are still near the top of their trading range, and appear poised to make a run above the support that has held them back for more than six months. Should bonds make a decisive break above current levels, they will likely move up another 30 basis points before hitting the next ceiling of resistance.
Core Logic released their Home Appreciation Rates for the month of April. They show a gain of 1.4% from February to March, with a year-over-year increase of 11.1%. This impressive figure is a bit higher than expectations, but not anticipated to continue at this rate in the near future. In fact, a well-respected hedge fund manager was very bearish on the future of the housing market during a speech yesterday. He pointed to disappointing new home starts as well as low levels of new home sales as evidence of a weakening market. This must be taken with a grain of salt here in Utah, as we seem to be holding a stable level, so far.
With mortgage bonds at such lofty levels, the safe play is to lock in to protect the recent gains. For those with the stomach to float, watch the market closely and be ready to pull the locking trigger should bonds weaken as the day progresses. Each of the last few times we reached these levels, bonds were abruptly pushed lower in the days and weeks that followed. A continued move higher will bode well for the bond market in the near future. However, until we make a decisive break above current resistance, the risk / reward will favor locking.