Despite rising stocks in the last week, Mortgage Backed Securities (the bonds that directly govern mortgage rates) have continued to trade steady into this week.
We have not had any impactful news for the bond market this week. Or rather, any impactful news that would move mortgage rates one direction has been offset by other economic factors and thus rates are holding steady. In recent days, Lehman Brother, UBS, and CitiGroup have all announced different measures to bolster liquidity. Both stocks and bonds like this kind of news as liquidity allows these large firms to more actively trade and lend in the financial sector (which is good for stocks). It also allows these firms to "securitize" (turn a mortgage into a mortgage-backed security) more mortgages. This increase in ability to move inventory has an upward pressure on prices (paradoxically) as as it reassures traders who would otherwise be wary of liquidity. The reassurance causes more buying and this raises prices. And as prices move up, mortgage rates move down.
For several weeks now, a conforming 30 year fixed mortgage has been available in the mid to high 5% range without much change up or down.
As far as the future, it is very hard to take a stand. The stock market has shown a constant propensity to rally even in the face of less than spectacular data. The fact that MBS have stayed relatively steady as stocks have risen in the past weeks is good news. It means that if you agree with many analysts that stocks have more negative news in the near to mid term future, then there will be more money that is able to move back into the bond market and lower mortgage rates.
Additionally, we have gone an uncommonly long time (with respect to recent volatility) without an extremely negative mortgage related headline. Bear Stearns was going to die, but then it was saved. Lehman Brothers came under fire, but then they raised 4 billion in capital quite easily. UBS had a major write down, but then were able to raise billions in capital. CitiGroup were able to sell billions in leveraged loans (not mortgage backed securities) at 90 cents on the dollar, which at the least is fair market, if not a bit higher. So the main concern of late in the mortgage market: liquidity, appears to be moderating over the past two weeks. The longer the mortgage market goes without detrimental headlines, the safer mortgage bonds will be perceived. As the safety perception deteriorated during the mortgage meltdown, investors have been heavily favoring treasuries, pushing the spreads between treasuries and MBS (mortgage backed securities) to all time highs. As the treasuries are currently near all time low rates and the quality perception is returning to MBS it leaves "room" for mortgage rates to improve in the absence of mortgage-specific headline shockers.
Floating is safe, at least in the short term. In the long term, let your own market bullishness or lack thereof be your guide. If you agree with some, that the worst is yet to come, then mortgage rates could get even better. But if you, like others, see recent events as an indicator of a bottom in our current financial downturn, it makes sense to lock sooner rather than later. in general, the healthier the economy, the more likely it is for mortgage rates to rise a bit.
If you want to check in on intra-day lock/float recommendations, but sure to check out the professional blog, linked at the top of the page.