15 October 2010 – The cost of mortgages took a minor beating this week after several days of favorable movement. You will notice that I refer to cost as opposed to rate. This is because rates moved little if at all, but rather the points required to secure the best rates increased and available surplus to credit back to clients to structure “no cost” loans decreased. In short, it cost more to get the same rate you could a week ago, but the rate was still very available.
The interesting aspect of the weeks performance stems from what went on behind the scenes in the market. Even though this was a short trading week due to Columbus Day weekend, there was a heck of a lot of economic data with the potential to move rates. Employment data and producer price information all pointed to and delivered on continued weakness. Additionally, the expected outcome of the most recent Federal Open Market Committee meeting verified a willingness for intervention. The potential flight to safety from these determinants coupled with several successful auctions of Treasuries signaled good things for rates. Most of the predictions were for stability or declining rates. This was not to be so and, although these factors may have provided an anchoring effect, rates still rose a bit.
The big news will come Friday morning as a slew of news about consumer sentiment and retail performance will provide verification of continued weakness or a glimmer of hope that we may be clawing our way out of our current economic pickle. If we see positive numbers, the equities market will likely respond favorably and mortgage rates may suffer. Negative numbers will send the strong message of a continued challenging environment. In this case, the resulting flight to safety would help keep rates low and may drive them back into record low territory. It should be an interesting day to say the least.
I am recommending that my clients closing in 15 days or less from today LOCK their rates and take advantage of recent gains. For those closing more than 15 days out, I would suggest FLOATING for now with a watchful eye on the markets for the best opportunity. If outside of 30 days because you have not applied, you should begin the process now. Rates are and have stayed low for an extended period, which has lulled homeowners into a false sense of security that this is the new normal. It is important to recognize that this is a fleeting time and it will change. We do not know when, but when it does, procrastinators will feel the same frustration they did when they neglected to sell their stock before the crash.

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