THURSDAY MORNING UPDATE:

I advise locking today and here's why:

There have been three big market movers over the past two days:

1. Yesterday's 5 Year Note bond auction met with weak participation and higher yields.  Mortgage bonds responded very negatively and I posted on Twitter at about 1:15, mortgage bonds dropped to -40 and fell well below the 25 day moving average.

2. The FOMC meeting adjourned yesterday at 2:15 PM and the market mover for bonds was the statement from the Fed that they were going to fully fund the mortgage backed securities bond purchasing program to $1.25T and continue the purchasing into next year.  Mortgage bonds liked the news, rallied and closed +9.

3. This morning the housing numbers came out and reflected the first decline in 5 months, a slide of 2.7%.  This gave stocks a moment to reflect and the DOW is currently down 65.

But here's the very important point:

Bonds have had two bits of good news which have pushed rates down, but stocks have been on a tear and today's drop will likely be nothing more than a speed bump.  The moon and starts have aligned for the mortgage bond and currently the 30 year fixed rate is the best its been in over five months.  The 15 year is best since Freddie Mac started tracking it in the early 90's.  And the 5/1 ARM rates are unbelievable.

So if you or anyone you know is considering refinancing, now is the time.

Here are a couple things to consider:

1. Rates are artificially low because the Fed is buying mortgage bonds and that will end next year.

2. Fannie Mae has to compete with the Fed to sell mortgage bonds.  The Fed is selling multiple billions of dollars of bonds to finance the debt and to attract investment capital those yields are going up. To attract investment capital in mortgage bonds, those yields will have to go up too, thereby pushing mortgage rates up.

3. Stocks and bond compete for investment capital so as stocks recover money "parked" in bonds will move to stocks. In order for Fannie Mae to attract investors to get the capital they need to fund mortgages, yields on bonds will go up, thus rates will go up.

Could rates go down more? Yes, anything can happen. But the Fannie Mae Bond is once again above the 200 day moving average. The longest that the bond has stayed above the 200 day moving average since Jul 15th was five days and the last time it broke through it fell the very next day.  The 200 day moving average is starting to level out as well which is also an indicator that rates are flattening and a fluke like today should indicate LOCK.