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Bart Castelli

Mortgage Rates Are Improving

Tuesday, July 21, 2015 - Article by: Bart Castelli - Homestar Financial Corporation NMLS #70864 - Message

Mortgage rates reversed course today and got in line with rates that saw improvement that the drastic changes we have seen in the past few months. Naturally, today's modest improvement is in line with our broader strategy shift toward a "wait and see" approach.

A little bit better today in very light trading. The 10yr is at 2.34% and MBS prices improved today. Once again no data to move markets. The driver today was the drop in the DJIA. There is nothing yet significant in the bond and mortgage markets after the Greek issue settled for the time being. The Greek 3rd bailout has just pushed the increasing dilemma down the road - I expect the economy in Greece will worsen making it even more difficult for the country to stay in the EU.

Finally some domestic data tomorrow with May FHFA housing price index and then June existing home. Debate over the status of the housing industry remains a hot topic - depends on where you live. Those markets that blew the bubble up are back on track with bidding wars while most of the US still is not showing strong sales. No supply is the prime reason, but what does low supply mean? The optimistic view is people want to move but cannot find a home to buy, the pessimistic way to see it is people do not want to move so there is no supply. Surely builders are slow at adding new homes, not able to find appropriate ground and plowing through piles of approvals and securing proper financing also plague the new home industry. June new home sales will be reported on Friday.

The work is still bearish, the long end of the curve including MBSs is locked in a narrow range. No impetus to resume selling now, equally not much desire to buy. 2.30% still looms as strong resistance while 2.50% strong support for the 10yr, as a result mortgage rates relatively flat for the last two months.

In summary, until recently, locking early and often was the only way to go. To be clear, that is still a perfectly viable strategy. In many cases, it is the only strategy, regardless of what markets are doing. But for those clients with more risk tolerance, who understand the potential costs, the past week has been the first safer-looking opportunity to see if recent highs will hold. It is worth noting that risks do increase somewhat tomorrow as we will get the week's first significant economic data. That said, increased risk is relatively balanced with increased opportunity.

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