In A Word:

Last time (no pun intended), we asked if the bit of positivity we experienced on Tuesday would last.  It certainly did as Wednesday was a great day that saw Mortgage Backed Securities (MBS, the bonds that directly relate to mortgage rates) rise throughout the day.  The risk was that it would reverse this morning and it has not.  Although volatile, and although we are not gaining any longer, we have not lost enough to ground to worsen mortgage rates by more than the smallest margin. 

The Why:

To prolong the broken record, inflation keeps rearing it's ugly head, sometimes even when it's not invited to the party.  We had some tepid and even weak economic news today which is normally good for mortgage bonds.  But within one of the reports that should have been mortgage-friendly, there was a metric that showed increasing prices for the demographic of this particular report.  This prompted bond traders to do some selling.  Remember that the higher the inflation rate, the less valuable bonds become.  So sellers have to offer buyers more for their money.  The natural market forces of price vs. demand then kick in and the prices get lower.  As we've discussed, lower prices on these bonds equals higher mortgage rates for consumers (someone has to pay the bill!)


To Lock or Float?

Tomorrow has the potential to be an extremely volatile day, and even today has been quite choppy.  If we didn't receive the inflation news today, floating might have been a safer bet.  But considering this, and considering that lenders will be ready to reprice at a moment's notice, it is probably too risky to float through tonight unless you have more than a week or two to wait for more market movements.  Even that would depend on a dearth of inflation data and stock-friendly economic data.

The Numbers:

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

The News:

Jobless claims continue to be very high.  Today, they were just slightly higher than expected, but the historically, they are in recession-indicative territory.

A survey of business conditions in the Philadelphia Federal Reserve district, which is followed as a potential snapshot of the broader economy, was much much worse than expected.  Additionally, this was the report that showed inflationary pressures in the form of higher prices paid.  That's a mixed blessing for mortgages because the low reading on the index is good, but the inflation more than offsets that.

Another report that compiles an index of numerous indicators came in just slightly better than expected.  This was not enough to hurt mortgages, but certainly didn't help.


Volatility is the name of the game today and likely to continue tomorrow.  It could go either way as both MBS and stocks are at "floor levels."  In other words, the Dow hasn't spent much time under 12k without bouncing higher, and it's a similar story for MBS.  So one of two things can happen: we can break through those floors, or we can bounce off them.  Of course, we could slide sideways for a while, as well.  If you think that inflation will stay under control and economic data will continue to be weak, then floating is gamble that might pay off for you IF you have the room to risk it.  Playing it safe would be the decision to lock as there are certainly as many reasons for the rates to go the other direction.  When it's a 50/50 environment, locking is a numbers game you can't lose (you only win 1/3 of the time).  So again, aggressively bearish on the market but fear no inflation: float.  Thinking the Dow has to bounce back up towards 13k and inflation will stay out of control: lock.