Wednesday 6/11/08 ..... Here's that Rebound
As we discussed, there was a potential for mortgage rates to rebound slightly from yesterday's "hammering" regardless of data this morning and simply because it's the psychological nature of cyclical securities to take 2 steps forward and one step back regardless of which way they are moving. Today would be the one step back (that's a step back from the mad dash over a cliff!). So we have some relief today.
The Why:
Again, the Inflation Boogie Man is the culprit (the main one at least) for the recent sell off. This is evidenced by the fact that mortgage rates were significantly better the last time the Dow was at today's levels. In the absence of negative data, and as long as the Dow does not rally, we should be able to gain even more ground today as traders are probably attracted to the lower prices on mortgages today created by the perhaps-one-step-too-much amount of selling that took place over the last few days.
To Lock or Float?
So this allows us to float through the day and assess rates this afternoon. Depending on where the market is at then, locking is probably wise, but if we have a major rally, lenders may not translate all of the gains in the Mortgage Backed Security (MBS) market to their rate sheets. Remember that when we talk about MBS pricing we're talking about the bonds that are traded between financial institutions, not your actual mortgage rates. Key personnel at the lender level review MBS prices in order to determine how much they will be able to sell your loan for and actually generate rate sheets according to their current situation and financial goals. So it is not always an immediate or linear relationship. In particular, when movements happen rapidly for the better, lenders often don't change their prices by that full amount until those gains have been established. As such, better rates are warranted by current MBS prices than are currently being offered by lenders at this hour. So delay your decision to lock by a few more hours. Things can go either way on Friday, and it will almost ALL depend on a key inflation report that will be released that morning.
The Numbers:
30 year fixed rates for the best qualified borrowers are around 6.0% today.
The News:
Nothing relevant is having a major impact on the MBS market in terms of scheduled economic releases, but again, Friday is a big day.
Conclusion:
Just like yesterday,I can't emphasize enough how quickly things can change a) in this current economic climate and b) when rates have risen extremely rapidly to their average level for the previous 12 months (roughly). This leaves as little resistance possible to going in either direction. Once momentum builds, that's that as far as rate increases. So again, locking is your secret weapon against a volatile market. Even if rates dropped, if you lock when you know you can afford your payment, you remove the risk of the loan being unexecutable.