In A Word:

Finally we have a better than tepid improvement to MBS (Mortgage Backed Securities), this morning.  MBS are the bonds backed by vast numbers of mortgages.  Basically, they are the bonds investors buy when they want to invest in mortgages, so when they improve, rates come down.  It takes a lot of improvement for rates to come down even a little, but nonetheless, they are more improved than they've yet been in the past week.

The Why:

As we've been discussing, inflation has been rearing its ugly head as a bigger and bigger concern to the financial markets.  Perhaps none are more concerned about inflation than bond traders because bonds are an investment that yields a return based on today's dollars.  So if inflation gets out of control, sure, you may earn 5% on your bonds, but if inflation rose at 5%, you really made nothing (although you did beat the "under the mattress" method).  Still, inflation forces bond prices down because sellers have to sell more for less in order to get buyers on board.  This phenomena has been occurring in spades over the past two weeks and is the major reason we've seen rates simply skyrocket.


To Lock or Float?

Despite the relatively upbeat overnight trading of MBS, the morning has been lackluster.  It's not out of the realm of possibility that the best rates of the day will be the first rates of the day.  There's no shame in locking, and incidentally, if you can afford the payment, there's also no risk!  Even now, I'm watching the bond figures flash in real time and can see the positive momentum feels almost impossible for rates.  So unless you have access to lock your rate within 5 minutes or less of making the decision to do so, I would lock this morning.  There is always a chance that rates will get better after you've locked, but you have a 1/3 chance they'll stay the same, and a 1/3 chance they'll worsen.  In either of those cases, locking is the way to go.

The Numbers:

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

The News:

A key report on Inflation was worse than expected as far as the prices that consumers are paying for goods.  However, the report also tracks a "core" reading which excludes the impact of food and energy.  This is usually considered the more important part of the report and it, in fact, matched evenly with expectations--a bit of luke-warm news for mortgages.

Housing starts, which are new construction projects, fell appreciably and most of the components of the report remain at or near all time lows.

A report that tracks industrial production was slightly weaker than expected.  Things like this, even if they don't cause major shifts, are generally good for mortgages as economic weakness can drive money out of more aggressive investments and into bonds.  This extra buying demand for bonds (remember MBS is a bond), allows sellers to raise their prices for them.  The higher prices mean the investors get a lower yield, and whether they are one, two, or three degrees removed, those investors are the folks lending you money to buy your house! 


Again, I hate to recommend locking at the beginning of the day because there is ALWAYS a chance that rates can get better by the end of the day, but when we see a whole stack of seemingly MBS-friendly data, yet the trading prices of MBS can't seem to hang on to their gains, let alone (and heaven forbid!) actually improve a little, it's a sign that the risks of floating outweigh the the potential financial gains.  Despite a very small victory (more like absence of defeat) with an inflation report today, we still have ages to fight before the beast is dead.  Until the end of that epic battle is in sight, it will be extremely difficult for rates to improve to their best levels of the year.  Does this also mean, by contrast, that they will worsen?  It's not a guarantee.  As you know, they can do ANYTHING, but a weak economy, as long as inflation isn't ridiculously rampant, will help to keep rates as low as they can be considering inflation.