In A Word:

It's been an extremely volatile environment for rates recently, with a huge upswing one day, followed by a huge downswing the next.  Keep in mind that when we reference "huge" that is referring to huge swings in the PRICE of Mortgage Backed Securities (MBS), which usually equates to a much less wild move in the actual interest rates.  For example, on a recent day with high movement, rates only changed .125%.  .25% would be considered a very high move.  In the most extreme cases, we've seen moves of .5% or more. 

The Why:

What could be causing such a volatile and unpredictable environment?  In two words: Fed Day.  As you may know the Federal Open Market Committee (FOMC, aka bernanke and gang) is meeting today and tomorrow with an announcement on policy tomorrow.  Leading up to these announcements, market participants usually increase their activity in attempts to prepare for what they anticipate the decision will be.  Some pull money out, some put money in, some shift it around.  The net effect is a much more volatile than normal week.  Additionally, the minutes and hours following the announcement can be similarly volatile, often with counterintuitive things happening to interest rates.  For example, if the Fed were to raise rates, it could actually help mortgage rates move lower on the day as it would ease inflation concerns.


To Lock or Float?

Floating is not recommended for anyone that does not have the ability to lock immediately.  Two things contraindicate floating right now.  The first is the extreme volatility: it could go in your favor, but there's an equal chance it will not.  The second is the fact that when changes happen today and tomorrow, they will happen very quickly, often precluding sufficient time to react, not to mention the fact that you'd have to be glued to the professional blog in order to even see those intraday rate changes coming.  With a 50/50 shot, that means 1/3 of the time rates will go up, 1/3 down, and 1/3 stay the same.  So assuming uncertainty, locking today's rate will get you the best rate 66% of the time.  Granted these aren't scientific numbers, but the general premise is "take the risk out of the market."

The Numbers:

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

The News:

Consumer Confidence fell to an all time low in a report released this morning.  Bad news for the economy normally helps bonds and hurts stocks. 

A survey of business conditions in the Richmond Federal Reserve District shows the second consecutive month of contracting activity.  Again, this points to economic weakness for the broader survey compiled by the Institute for Supply Management.


We got a nice boost from the weak numbers this morning, but the Dow, which normally moves lower on bad economic data, decided that it didn't like being down that low.  Moderating intraday oil prices and a rebound from the financial sector are helping with the rally.  As stocks have pushed into positive territory, and now are about 50 pts higher on the day, money is continuing to be pulled out of the bond market which is reversing some of the gains we had this morning.  In the absence of scheduled economic data, the stock market is one of the main indicators for the movement of rates.  With the Dow under 12,000 and having fallen so much recently, there is yet more evidence that locking is safest, as the Dow would LOVE to rebound if the data would just give it the slightest excuse.