Market Snapshot

Wednesday's bond market has opened has opened in negative territory following the release of stronger than expected economic data. The stock markets are showing minor gains with the Dow up 22 points and the Nasdaq up 6 points. The bond market is currently down 3 basis points and 30 year fixed rates, posted at 12:21 EST, were the same as Tuesaday's close. 

Float or Lock?

If you are purchasing and closing within the next 30 days or if you are refinancing and hoping to take advantage of the historically low rates, then take a look at the chart below. It's a Japanese Candlestick Chart of the Fannie Mae 4.5% bond. Each candlestick represents a day, and the chart covers the last 90 days, earlier to the left and today to the far right. Green vertical candlesticks represent advances in bond prices and subsequently lower rates. Red vertical candlesticks represent lower bond prices and higher rates. Of critical importance to today's chart are the two strong horizontal lines running across the top of the chart. Those lines represent overhead resistance. First you will note that the bond price is the best it’s been in the last 90 days. But more importantly you'll notice that the bond hit the resistance line yesterday and then bounces back. The top of the thicker portion of the green candlestick represents where the bond closes and the thinner part of the candlestick represents the intra-day high. Note that again today the bond tested the ceiling and then retreated. So the $64 thousand dollar question is this: "Am I willing to gamble that the bond, against the odds, will break above resistance?" If so, float. If not, lock. Historically, when the bond hits this type of resistance and fails to break through, a fairly rapid decent (higher rates) follows.

Today's Mortgage Market News

The first of today's four relevant reports was October's Durable Goods Orders that showed a 0.6% decline in new orders for big-ticket items. This was much lower than the 0.5% that was expected, but this particular report is known to show quite a bit of volatility from month-to-month. So a wide variance does not necessarily mean a big change to mortgage rates, but this morning's news can be considered favorable for bonds and mortgage pricing.

The second report of the day was October's Personal Income and Outlays data. It revealed a 0.2% rise in income that was expected, but a 0.7% increase in spending that exceeded forecasts. That means consumers spent more than many had thought, increasing the possibility of economic growth. This is bad news for bonds and mortgage rates because an expanding economy usually raises inflation concerns and makes mortgage-related bonds less attractive to investors.

The revised November reading to the University of Michigan Index of Consumer Sentiment came in at 67.4. This was slightly higher than expected, meaning consumers felt better about their own financial situations than many had thought. That can be considered bad news for bonds, however, this was not enough of a variance to affect mortgage rates.

The final report of the day was October's New Home Sales. It showed that sales of newly constructed homes rose 6.2% last month, greatly exceeding forecasts. As with Monday's Existing Home Sales report, this data indicates that the housing sector is strengthening at a quicker pace than many had thought. That is bad news for bonds and mortgage rates because a recovering housing sector makes a broader economic recovery more likely.

Also worth noting was a surprise drop in new claims for unemployment benefits filed last week. The Labor Department said that 466,000 new claims were filed last week, falling well below forecasts and their lowest total since September of last year. Fortunately this data is not considered to be highly important, but its results did somewhat influence the stock markets and bond trading this morning.

Yesterday's 5-year Note auction went very well, raising optimism about today's 7-year Note sale. As with yesterday's auction, results will be posted at 1:00 PM ET. If there was a strong demand from investors, we could see bond prices rise again during afternoon hours, possibly leading to improvements in mortgage rates. But a lackluster interest in the sale could lead to higher mortgage pricing.

The FOMC minutes that were released yesterday afternoon didn't really give us any surprising news, but did appear to be more optimistic about the economy than during previous meetings. The Fed raised their estimates for next year for overall economic activity (GDP reading) and lowered predictions for the unemployment rate. This means that they think economic activity will be better than previously thought and that unemployment will not be as bad as previously estimated. Those can be considered negative points for bonds and mortgage rates, but the strength of the 5-year Note auction yesterday prevented bonds from reacting negatively.

The financial markets will be closed tomorrow in observance of the Thanksgiving Day holiday. There will not be an early close today, but they will close early Friday afternoon and will reopen next Monday morning. I suspect that Friday will be a very light day in bond trading as many market participants will be home and there is no relevant economic news scheduled for release. Banks have to be open Friday, but we will likely see little change to mortgage rates that day.

If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.