Market Snapshot

Tuesday's bond market opened positive, turned negative for a short while, but then closed up 34 basis points. Remember, there is an inverse relationship between bond prices and rates...when bond prices go up, interest rates and discount points go down.  Today ended a six-day winning streak for stocks with the DOW closing down 2 and the NASDAQ down 3. Consequently, mortgage interest rates started the day with discount points .125% lower than Monday's close and then improved by another .125% later in the day.

Lock or Float?

Mortgage bonds found some footing today, but if you are considering purchasing a home or refinancing, take action now because interest rates will continue to rise, Here's why. The Fed has committed to buying mortgage backed securities through March of 2010. They're buying these securities because currently they seem very risky to any likely investors.  But as the Fed has trimmed their buying, rates have inched up. What happens when the Fed stops altogether? A recovering real estate market will create demand for mortgage capital, but with investors unwilling to assume such high risk at such low returns, rates will rise to attract investment capital. Float in the near term and take advantage of the upturn in bond prices, but be prepared to lock when the reversal hits.

Market News

The Conference Board posted their Consumer Confidence Index (CCI) for December late this morning, showing a reading of 52.9. This nearly matched forecasts and indicates that consumer sentiment about their own financial situations was close to where analysts had thought. That can be considered favorable for mortgage rates with the recent negative tone in the bond market. The lack of a higher than expected reading brings somewhat of a sigh of relief following the downward move in bonds over the past two weeks.

Today also brings us the first of two important Treasury auctions on this week's calendar. 5-year Treasury Notes will be sold today while 7-year Notes will be auctioned tomorrow. Yesterday's 2-year Note sale, that was less important to mortgage rates than today's and tomorrow's sales will be, did not get an overly strong interest from investors. That raises concern that the other two sales may also generate a lackluster demand. If that is the case, we may see further weakness in bonds before the year-end and possibly upward revisions to mortgage rates. If we happen to get good results in the sales, particularly tomorrow's more important 7-year Note sale, bond prices should move higher and mortgage rates move lower. Results of each auction will be posted at 1:00 PM ET each day, so the potential for afternoon revisions to rates is fairly high today and tomorrow.

There is no relevant economic news scheduled for release tomorrow except for weekly unemployment figures. The Labor Department is expected to announce that 460,000 new claims for benefits were filed last week. This would be an increase from the previous week, but unless we see a large variance I don't think this data will have much of an impact on mortgage rates.

The bond market will close at 2:00 PM ET Thursday and all of the U.S. financial markets will be closed Friday in observance of the New Year's Day holiday. They will reopen for regular hours next Monday morning.

If I were considering financing/refinancing a home, I would.... Float if my closing was taking place within 7 days... Float 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.