Monday 6/9/08 ......... Mortgage Rates Rising Again

In A Word:

Due to stronger than expected news concerning pending home sales, mortgage rates have risen since last week.

The Why:

Remember that mortgage rates are dictated directly by the trading of Mortgage Backed Securities, which are essentially bonds.  So when there is a greater demand for these bonds, the price goes up.  And with bonds, the higher the price, the lower the yield for the investor buying it.  It is this yield that translates directly into your interest rate.  So, in general, when economic reports are released, such as this morning's pending home sales report, that are stronger than expected, it builds a degree of faith in the strength of the economy to the extent that the data deviated from the consensus of analysts.  This type of sentiment generally leads investors to sell their fixed income holdings, of which Mortgage Backed Securities are often a part.  When there is more pressure to sell, sellers lower the price in order compete.  When the price decreases, the rates go up. 

To Lock or Float?

This depends largely on your time horizon.  Recently, we've had more down days than up.  Floating is becoming very risky and is not recommended.  Granted, there is always the possibility of a mid-day turn around that will lead to price improvements, but if you were forced to choose one or the other, locking is the safer choice, short term.

The Numbers:

 The best rates available today on a 30 year fixed are now reaching the low 6's

The News:

• pending home sales
• This index, composed by the national Association of Realtors, rose a hefty 6.3% this month.  The markets consider this as a potential indicator that lower prices are finally beginning to drive demand.  This is a component that is driving stocks higher today and hurting mortgage rates.
• Other News
• Keep in mind that there are always going to be many news stories regarding the economy every hour of every day.  But when we refer to news on this site, it is almost always the scheduled economic reports that occur on the same time schedule each month. 

Conclusion:

It's always tough to recommend locking as opposed to floating, because once you lock, that's that.  At least with floating, you have the chance to see rate increases coming and lock in before they hit (although this is risky).  Intraday locking is indeed where this blog can be most useful as trying to predict rate changes from day to day is usually a 50/50 proposition.  So although there is always a chance that rates will improve after you lock, the indicators we have available point to increasing rates in the short term (next few days).  But remember that so much depends on the scheduled economic data.  If any of it is drastically weaker than expected, rates can improve.  As always, I encourage you to independently research the scheduled releases and draw your own conclusions.  Or just keep tuning in here!