In A Word:

Despite weaker than expected economic data and the Dow average moving down, Mortgage bonds cannot seem to garner enough support to get rates to improve at all this morning. 

The Why:

What does that headline mean?  Recall that mortgage rates are a direct result of the trading price of the bonds that are secured by mortgage portfolios - Mortgage Backed Securities (referred to as MBS).  MBS are part of a group of investments that pay a fixed rate of return based on a purchase price versus a yield (when price goes down, yields go up), appropriately called: "fixed income." (FI).  FI hates inflation.  Why?  The higher the inflation, the more worthless the dollars that FI investors receive on these investments.  So in order for bonds to make sense for these investors, the prices have to come down to the point where their yield is high enough to make sense.  And yield is the direct correlation to interest rates when it comes to MBS.

In short, many experts are saying that we have ignored too much of the inflation problem for too long, and now we have some catching up to do.  This sentiment has been largely responsible for the massive recent rate increases we have had.  And today we are seeing that even in the face of weak economic data, the urge to buy (which would lower rates), is simply very hard to create given the current tenor of inflation and the fact that the Fed may start raising rates.  Its a tough situation.  Normally, rising rates would correspond with a strengthening economy.  But the economy is not getting stronger yet, and it may not for quite some time.  One of the only factors that can keep rates from improving in that scenario is massive inflation concern.  The word "stagflation" has been mentioned more than once recently, and that isn't good for either side of this dichotomy.

To Lock or Float?

Again, given the seemingly insurmountable inflation concerns as evidenced by the fact that data could be weak (which normally helps bonds), yet we still have level to rising rates, locking is clearly the safer choice these days.  We normally leave this recommendation a bit more equivocal to account for personal preference and risk tolerance, but locking is firmly recommended until we see these inflation concerns begin to stabilize. 

The Numbers:

 30 year fixed rates for the best qualified borrowers are rising into the low to mid 6.0% range today.

The News:

Empire State Manufacturing Survey

This tracks general business conditions in New York, and came in much weaker than expected indicating contracting business conditions.  Normally, this would be good for mortgage rates, and indeed, it did give MBS a lift earlier this morning, but we have since fallen right back to where we started. 


Does this all mean there is no chance of a rate improvement?  No.  Rates can always improve, and often there are "two steps down and one step up" as prices sink.  But trying to time those as a consumer in the current climate is not only difficult, but the amount of the low probability reward does not seem to be the risk.  If the current interest rate gets the job done, its better to be done with that decision and move one, as opposed to jeopardizing the transaction altogether.