Mortgage Blog

Wow, mortgage backed securities finally headed in the right direction direction, even if just for a short time. I hope you all were paying close attention and were able to help your clients cash in on the correction. After the sub-prime collapse Congress and the Fed severly overcompensated for lending program credit requirements, but now recent changes have once again breathed a little oxygen into the lungs of the shallow mortgage industry. Just how long is it going to last though?

The recent changes come from MSNBC reports that U.S. consumer confidence fell to an unexpectedly near 10 year low, sinking to the fifth-lowest level ever in history.The report Tuesday also said the group’s reading of consumers’ expectations hit an all-time low as home prices tumbled while gasoline and food prices rose. A separate index of home prices saw the largest drop since its inception in 2000.

Last week did not have a lot of data coming in so it relied a lot on technical factors and the direction of stocks mostly.  In the previous weeks, bonds have done very little besides fall down a steep slope, so a move higher was needed just to bring reality back into the mix.  The move higher is likely unsustainable, but more on that later.

Looking at the past week, oil prices continued to climb, even when Saudi Arabia announced that they would increase production.  Combine the recent strikes in Israel with talks from Israel about preemptive strikes on Iran’s nuclear plants and you can see why oil is dropping.  Since oil prices are part of the inflationary battle, bonds did not like the news.

However, things were not all bad for bonds as they did climb, fueled by more fears of a slow economy.  The manufacturing sector showed weakness, the Philadelphia Fed Index missed expectations, and more write downs from CItigroup all aided in giving bonds a much needed boost.  By the end of the week, mortgage rates were down a little, about .125%

Technically speaking, bonds are still leaning toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

However, don’t let your guard down just yet as the future does not look bright for bonds.  For starters, the move higher is likely just a correction as bonds failed to break resistance on Friday and remain below their downward trend line. 

Technical analysis is pointing toward the oversold side of the spectrum, but they remain in their downward trend.  Without any catalyst to break the trend, the recent move higher will be a needed correction and the downward trend will resume shortly.  I would start the week off cautiously floating if bonds open higher, but be ready to lock as the trend lower resumes.

Stop by Loanbark soon as I will continue this blog with expansion on how these factors will effect the mortgage market and what we can expect in the next 3-6 months.