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Bart Castelli

Mortgage Rates Gave and Then Took Away

Friday, January 16, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 - Message

Mortgage rates pulled back to slightly higher levels today as broader markets underwent a correction from relatively frenzied movement over the past few days. Unfortunately, the most prevalently quoted conforming 30yr fixed rates for top tier borrowers are now at 3.75% with some asking for 3.625% with extra fees.

What the market giveth, the market can take away.... and it did today in the bond and mortgage markets. If you doubted my concern about volatility this a prime example in both stocks, bond and mortgage markets. When markets act like they have since the beginning of the year, it is a sign of confusion. What will the ECB do next week? How serious is the price declines of most all commodities for the growth outlook? Crude is technically oversold, how will markets react as its price rebounds? What will the Fed do about the lift off to higher FF rates now with deflating prices? Is inflation dead, so far central banks have shown they cannot totally control markets with their money printing? This is 2015, after ignoring any caution in 2014, that will no longer get a pass this year for equity markets.

Yesterday Dec PPI declined, today Dec CPI also declined. There is an argument among economists, that declining commodity prices alone will not trigger deflation; to enter into the true deflation spiral requires consumers and businesses have to cut back on spending because they expect prices to fall further--the outcome being a decline in output and employment that pushes prices even lower. We believe that the spiral has already started - the decline in December retail sales on Tuesday surprised the markets. Consumers were expected to have opened their pocket books with gasoline prices cut in half, it has not happened yet. Revolving consumer credit (credit cards) declined $1B. Business spending also is being cut back. The deflation outlook is quickly gaining momentum.

Next week will be exceptionally volatile, this week just a warm up. The ECB holds a lot of the cards - widely expected the bank will announce a major QE to purchases of EU country debts. If it stumbles again as they have in the past expect another run lower for the bond and mortgage markets. Given the recent history of the EBC any QE will be less than expectations resulting in lower rates and more declines in US stock markets. Central banks remain convinced that deflation is unlikely in Europe, the history of central banks' is not good. The Fed did not have a clue about what was occurring in the housing sector in 2005 thru 2007, after the damage was done. Greenspan on less commented that central banks cannot tell a bubble developing until after the fact. Markets are faced with central banks twittering away with the inability to manage economies and have little control over inflation or deflation until after the fact. Look at the Fed, every quarter in the last 18 months when the Fed releases its longer outlook on the economic growth it has lowered expectations from the previous outlook.

Next week, all US markets are closed on Monday. Tuesday there is no scheduled data. The rest of the week will prove that we will have very high levels of volatility, and what was started today may continue on Tuesday.

In summary, days like today are never welcomed, but we have to factor in all the improvements we have benefited from over the last couple of weeks, and really the overall bullish trend we are currently in for quite some time. Locking today does not make much sense to me as we should at the very minimum get some relief from today's selling next week. Selling a stock during a bloodbath is a loser's trade, and the same bodes for locking in today. I would float until next week and see where we land. I would not be surprised to see rates set even lower lows in the next couple of weeks, as I hope today was the only correction, but next week is going to be interesting.

Remember, if you want to know the benefits of locking your rate today versus floating, simply give me a call at 314-744-7806 or visit my website at I have access to real time Wall Street data and instant market alerts with breaking news that I monitor throughout the day to assist us on making the informed decision.

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