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Bart Castelli

Mortgage Rates A Little Bit Better Again

Tuesday, March 17, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 - Message

Mortgage rates continue a little bit lower again today, extending a recent winning streak that has seen improvements on 6 out of the past 7 days. It was about what was expected today, as there was very little to no movement in the bond and mortgage markets ahead of the FOMC tomorrow.

I have said about all there is to say about the Fed - the word patience, and how the FOMC will decide to confuse markets a little more. The overwhelming view is the Fed will increase the FF rate at the June meeting. However, as previously noted, there are a few of us in the minority believing the Fed will wait until next year. Inflation is well off the radar, the Fed does not need to pre-emptive to get ahead of the potential increase. Labor costs are expected to increase because of the solid increase in jobs, another belief we do not hold. Those jobs are mostly low-paying and there are plenty of potential workers that will have to settle for low pay. One thing to look at tomorrow in the policy statement, what Yellen thinks about the strength of the economy. The Fed nor Wall Street can afford any negative outlooks no matter how some FOMC members would like to say.

Everyone saw it coming in December - the cold winter. Every year any disappointing data this time of year is dissed as weather-related. Most all data points this year have been weaker than economists' forecasts. Last week Bloomberg released what is called the Economic Surprise Index, which measures incoming economic data against economist expectations. The only data that has beaten estimates this year is employment, the rest of it does not look good.

No market influencing data tomorrow, as it should be quiet until 1:00PM when the policy statement hits. The 10yr was down 2BPS to 2.06% and resting on very critical levels. Tomorrow afternoon expect a big move in interest rates, of course the direction will come from the FOMC policy statement. If the statement implies the Fed is not yet ready to drop the green flag rates will rally nicely taking the 10yr down to 1.95% and pushing MBS prices up 65 bps. The other side - if markets take away that the Fed will move in June the 10yr yield will quickly run to 2.25% and MBS prices will decline 70 bps.

In summary, as far as tomorrow goes, it is important to understand that rates can change significantly and quickly. It could easily be the case that I will not be able to accommodate lock requests during certain times of the day tomorrow. As such, you need to decide if you want to lock before the FOMC events (which begin at 1PM) or wait for their full effects to make it onto rate sheets. There will not be any middle ground there, for better or worse. Loans that are closing between 15-30 days are in a tricky place. I would strongly recommend locking!

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