Mortgage Rates Report

I'm often asked how I come up with my advice to lock or float the mortgage rate when San Diego home buyers read the Mortgage Rates Report.  Well, I read a lot, that's for sure.  I read Bloomberg.com and the Mortgage Market Guide research which gives me access to real-time quotes of mortgage-backed securities.  The charts I review of mortgage-backed securties prices give me an idea of what the short-term trend looks like.

Let's look at today's chart:

This chart show the prices of highly-traded mortgage-backed securities.  I show it with permission from the Mortgage Market Guide.

There are two things that are worrying me right now: 

1- Look at the green bar on the right; the price for the FNMA 6.0 mortgage bond closed below par (or 100).  That means that the bond, issued at the beginning of the year, is worth less than the original issue price.  While that means little fundamentally, it means a whole lot psychologically.

2- Notice that the price closed BELOW the blue line.  The blue line is the 200 day moving average,  This means that prices seem to be trending lower which means mortgage rates can rise.

Can prices bounce back?  Of course they can.  Friday is a big day, however.  The retail sales' figures are being released Friday.  We'll get a glimpse into the consumer spending behavior.  If the consumer has been absent, the economy's softening which could mean more Fed cuts- that would be great for mortgage rates.  If that number demonstrates that the consumer isn't affected and has been buying plasma TVs at Costco, it's a safe bet that interest rate cuts will have stopped.

The affect on the mortgage bond market will be brutal.  Mortgage bonds are weak (they're below the "par" pricing and below the 200 day moving average).  One little hiccup and we could see prices drop all the way down to the red line.  That drop in mortgage bonds could translate to a full .25% or .375% hike in mortgage rates.

Did I confuse you?  I hope not.  This is pretty boring stuff to the non-professional.  I mean, San diego homeowners need a mortgage every 3-4 years at most, right?  The important thing is that  you deal with a mortgage adviser who has access to these tools and knows how to interpret them.  You should be locking-in your mortage rate at application, at least until we see what the numbers look like on Friday.

How do I know this?  Look at the chart !  Contact me for a better explanation.  I'm happy to show you these charts online and talk you through it on the telephone.

Related Posts

Actions

Brian.Brady 1 feedback »

Comment from: Kristal Kraft [Visitor] · http://www.theberkshiregroup.com/DenverIQ

Brian thanks for the explanation.  Forecasting is so important in our business. Looking at the past is one thing, but anticipating the future as accurate as humanly possible is so important when financing a home.  It's nice to know you pay attention to such details!

kk

P.S. You get a gold star and 200+ pts.

Permalink October 10, 2007 20:32:47

Comment on this article

Name:

Email:

Your email address will not be displayed.

Site/Url:

Your URL will be displayed.

Comment text:

Standard HTML is allowed in posts

Options:

Line breaks become <br />

Remember me

Allow users to contact you through a message form.

Captcha:

Please enter the characters from the image above. (case insensitive)

Captcha code:

This post has 1 feedback awaiting moderation...