Friday December 10, 2010 7:25 PM ET

By John Sauro

Mortgage Rates Trend Higher

Mortgage Bonds made a new closing low in the move lower, confirming the downward trend for Bond prices and an upward trend for Mortgage Rates.

Our Benchmark 4% coupon fell 66 basis points to end at 98.94 down 165 basis points for the week.  The Dow rose 40.26 to 11,410.32,

the S & P 500 index gained 7.40 to 1,240.40 and the Nasdaq rose 20.97 to 2,637.54.

Bonds typically loose ground when the stock market does well, as investors move from Bonds to Stocks for better returns.

Another big reason for the rise in interest rates is China.  China’s year-over-year inflation rate for October was 4.4%.  It is speculated that China’s November inflation number, due to be reported this weekend, will come in even higher, at 5%.  That’s unbelievable considering it was under 2% just last year.   There is speculation that China will raise rates over the weekend to fend off inflation and Bonds all over the world will move lower on news of inflation.  This means another rough ride for Bonds on Monday and higher mortgage rates.

Are Bonds Poised For A Rebound?

Many analysts believe Bonds are oversold and are due to move higher.  That may be true, but the trend lines indicate Bonds moving lower.   Therefore, we may see a rebound for a very brief period of time. And when I say brief I mean for a few hours to a day or two.

So, the strategy for those financing a home purchase or refinancing is to be nimble.  Make sure you have decided on a lender, put your application in process and be ready to lock at a moments notice.

Will Your Big Bank Give You A Better Deal?

Most lenders and mortgage originators don’t follow the bond markets as closely as I do. That’s too bad, because they are not providing a complete service to their clients.  These are volatile times and timing is everything in this market. A few weeks ago you could have locked in as low as 4% on a conforming 30 Year Fixed Rate Loan.  The ability to advise a client to lock into a rate or float the rate can save thousands to tens of thousands of dollars.  And the large banks, do not offer this service.  Stick with small to medium lenders and brokers as they are more professional than the big banks factory employee’s.  The big banks are nothing more than the McDonalds and Burger Kings of Lending,  employing unprofessional minimum wage, uneducated, untested and unlicensed individuals that are given the responsibility of handling one of the largest financial investments of a your life. Yikes, do you want to take a chance.

Take a moment to Google “mortgage complaint’s banks Name” and you will find hundreds of complaints.  Don’t be fooled by their advertising.  And just because your checking and savings account is with them does not mean they are going to give you a better deal. Savings and lending are not connected. They are separate entities and you still have to get approved for the loan regardless. You won’t get a lower rate because you’re a customer.  Those who believe that also fell for the Free Toaster when you open a CD Gimmick.  This is your mortgage we’re talking about. Don’t blow it.

These institutions are responsible for the credit crisis and economic conditions we are faced with today. It was our tax dollars that bailed them out.  They didn’t lend out a dime of that money, they still offer no transparency and they made fortunes in the last year.  Just because it’s a big bank doesn’t mean your going to get a better deal.

There’s a reason why mortgage brokers and small lenders accounted for 70% of all loans originated in the past. It’s because they are very good at their profession. They work with multiple lenders and search for the lowest rates and costs for your situation and provide exceptional service.

Strategy for the Coming Week

While Bonds are oversold, and are trying to find a bottom, it wouldn’t surprise me if we see another leg down on Monday.  The next floor of support is Wednesday’s intra-day low of 60 basis points beneath current levels. That’s a long way down. So, I am still maintaining my bias toward locking into rates. However, if you’re a gambler, you may want to wait and see what happens on Monday and be ready to pull the trigger.

 Friday December 3rd, 2010 6:46 PM ET

By John Sauro

Mortgage Rates Climb As Bonds Loose Ground

Mortgage Bonds have dropped 400+ basis points in the last month, forcing lender to re price mortgage rates higher.  It reminds me of May of 2009- the Bond dropped 650 basis points in just a few weeks.  My concern is that prices could drop a lot further.  All of this pales in comparison to the 10% mortgage rates only a short decade age, so today’s 5%- 30 Year fixed rates are fantastic by historical standards. 

You don’t know where the bottom is until it is gone.  So for those of you who were hoping for 3%- 30 year fixed rates, I recommend making a move while rates are still incredibly low.

This Weeks Mixed Bag of Economic Reports 

• Novembers Chicago Purchasing Manager’s Index came in at 62.5, much better than expected, and the highest since April. 

• Consumer Confidence was 54.1, much better than expectations of 52.0- the highest level since June.

• The Case Shiller Housing Index for September showed that home prices fell more than expected.

• The ADP Report showed that private sector employment rose by 93,000 in November, higher than expectations of 58,000.

• Initial Jobless Claims were reported at 436,000, above the expected 422,000.

• The November Jobs Report came in at 39,000, way below estimates of 130,000.

• The Unemployment rate ticked up 0.2% to 9.8%

No doubt, these are turbulent times.

The Fed and government are going to continue to try and revive the economy and this won’t be good for Bond Prices and Mortgage Rates.

 There’s a saying- “Don’t Fight The Fed”

Therefore I continue to maintain a locking bias toward interest rates unless Bonds can move above the 200-day moving average.

Friday November 26, 2010 5:30 PM ET

By John Sauro

Bonds Remain Pressured

The bench mark  3.50% coupon lost and additional 60 basis points this week to settle at $97.93, putting lenders in a position to once again re price for the worse. The fact that Bond prices closed below the important support level of $98.12 could be signaling that the sideways trend is over and the downtrend is resuming with the next level of support at $97.00. This is not good news for Mortgage rates. However, even with the recent run up in mortgage rates, interest rates are still historically low. 

Quantitative Easing 2

The Fed “Meeting Minutes” were released this week.  The Fed has finally acknowledged that a weaker Dollar could be good for a stronger recovery. You think?   The Fed has been silent on this point as it has accused China of the very same currency manipulation.

While this may be good for the economy, the stock market and will help to spur inflation, it is most certainly not good for interest rates. Especially home loan rates.

I continue to recommend locking into rates.

Special Report

Monday November 15, 2010 9:05 PM ET

By John Sauro

In light of today’s dramatic losses in the Bond Market, I thought it important to write this brief report on what exactly is happening to Mortgage Bond prices and Mortgage Rates and what to look for moving forward.

      Mortgage Bonds fell 119 Basis Points before finishing  the day down 109 basis points. There is seemingly no bottom for Bonds.  When Bonds tried to mount a come back during the todays trading session, they touched the 200-day moving average resistance level and then fell further throughout the day.  As I said in today’s Alert, Bonds have more room to fall before the next floor of support, 100 Basis Points lower.

      The 109 basis point loss is the equivalent of .50% increase in mortgage rates.  The rule of thumb is; mortgage rates move .125% for every 22 basis point movement in the price of Bonds. If you have been reading my “Market Update”, this fast moving market should come as no surprise.  I have been warning that when the market turns it can turn ugly very quickly, as it has.

Rates for 30 year fixed rate jumbo mortgage went from 4.25%  back on November 4th to 4.75% today.

The good news is that rates are still historically low and there may be a possibility for a reversal.   

Today’s crazy trading created a Bullish Inverted Hammer Pattern on the Bond Chart (see chart below).  This pattern could be signaling a reversal.  We will need to wait for tomoorow’s trading session for confirmation. 

      What this means is; in a market demonstrating a downtrend- like we are seeing now, bulls can rally price up momentarily-like they did today.  But not strong enough to close above the days open. Typically, this could mean a more sustainable bullish rally.  This reversal trend can be confirmed by a bullish move the next day. As I said, this needs to be confirmed tomorrow. 

However, if prices open and move lower, that will mean that the down trend will continue and the next floor of support is 100 Basis Points below current levels.

      So, there may be an opportunity to lock into rates recently seen in the market, but don’t hold your breath to long.  My advice is to lock into any sign of improvement in rates.  I’ve said it before; don’t gamble a guaranteed saving to save a little bit more.  

Watch your email for updates and be ready to lock in.

 Bond Price Chart

Mortgage Rates Move Inversely of Bond Prices

Friday November 12, 2010 6:17 PM ET

By John Sauro

Mortgage Rates Rise as Bonds Sink

It was a bad day and a bad couple of weeks for Mortgage Rates as Mortgage Bonds and Treasuries have been under heavy selling pressure. After several days of losses, prices are now hovering just above a floor of support at 99.00.  If this support level is breached pricing could easily drop another 50 bp lower to the next level of support.  The problem now is that traders are reluctant to step in and buy.  Hence, the saying “don’t try to catch a falling knife”   China’s inflation fears and the Feds buying of Treasuries, part of the Quantitative Easing program was mainly the reason Bonds sold off.  The Fed purchase of $7.23B of Treasuries today did little to help Bond prices as dealers had $29B for sale.  Our benchmark 3.50% coupon Bond fell 78 basis points to end the week at $99.22.

Lenders immediately reacted and raised interest rates mid day, while some lenders re-priced higher twice today.   

Congratulations to those of you who took my advice and locked into rates when I emailed Wednesday’s “Alert to Lock”

What’s Lies Ahead for Mortgage Rates?

A look at the Bond Chart below tells the story.  The technicals aren’t pretty. Bonds hate inflation. Why? Because as inflation rises, Bond prices have to fall in order to give Bond investors a more attractive yield that will outpace inflation. A rising tide raises all ships.  Think of inflation as the tide and interest rates as the ship. Therefore, China’s recent reading on inflation, which came in at 4.4% annual rate, is going to be key in how Bond prices and Mortgage rates behave in the coming weeks and months.  In order for China to fight inflation, they have to raise rates.  And if China raises rate, global investors will move their money into China, unless the U.S. raises rates to keep those same investors. Get it?

So, while our government would like to keep rates low to help our economy, they may have no alternative but to raise rates or loose investors or the ever growing U.S. Debt.

I maintain a bias toward locking into rates at this time.

Watch your email for future Rate lock Alerts.

  Bond Price Chart

Mortgage Rates Move Inversely of Bond Prices

Friday November 5, 2010 5:54 PM ET

By John Sauro

 Bonds End the Week Higher

Bonds were able to finish the week 62 basis points higher than where they started on Monday, but not without volatility and uncertainty.  Traders were nervous in anticipation of Wednesdays Fed QE2 announcement and today’s jobs report number pressured Mortgage Bonds 47 basis points lower on the day.  In all Mortgage Bonds actually gained 62 basis points for the week. Bonds broke below the 25-day moving average, but remained above the 100 day moving average.

Take a look at the Bond chart below for a better picture of the volatility.

The Fed’s Quantitative Easing Plans

      On Wednesday, the Fed announced it will be buying about $110B or so per month…or just under $1T of Bonds by the end of June 2011.  The news sent Bond prices dramatically higher and then lower, before ultimately moving even lower.  The Fed chose another round of Quantitative easing to spur spending, help lower the unemployment rate by boosting the economy and to push stock prices higher.  However improvements (if it works) in these areas will mean higher mortgage rates down the road.

      Back in the Fall of 2008 when the Fed announced the first round of quantitative easing- Mortgage Bonds initially moved higher on the announcement, but once the Fed initiated the buying of Mortgage Bonds, home loan rates didn’t move lower. It is likely this same scenario will play out this time around as well.

      Another reason why rates may not move materially lower,  is that lenders are backed up with processing and underwriting loans.  Therefore, they will not move rates lower as they don’t want to increase production they can’t handle.  Lenders are discouraging rates locks of less than 60 days as many of them cannot process, underwrite, approve and close loans in less than 45 to 60 days.

      The smart money is locking into mortgage rates at current levels.  Look at it this way; if you can save $400 by locking in now, don’t gamble that away to save an additional $100 if rates were to move lower.  Ask yourself. How good are you at timing the stock market or knowing when to walk out of the casino.

Friday October 27, 2010 4:50 PM ET

By John Sauro

Solid Gains for Mortgage Bonds

What a Ride?

In the last seven sessions the Mortgage Bonds went from $101.43 on October 21^st to a close of $99.96 on October 27^th and finally finished the week closing at $100.75.  Mortgage rates followed in tandem within a .25% range.

The big reason for the volatility is due to the change in sentiment as traders are now looking ahead at possible inflation concerns.

Economic News

The Case Shiller index of home prices reported housing prices to be roughly stable in 20 major markets for the last 18 months.  

Today the initial read on the Gross Domestic Product (GDP) showed a rise of 2.0% during the 3^rd Quarter and was in line with estimates.

Also supporting Bonds was a read on Consumer sentiment, coming in at 67.7%, lower than expectations of 68.0.

The recent economic data, all a bit weak helps to support the Fed in next week’s expected announcement regarding the next round of Quantitative Easing (QE2).

I recommend floating rates, not locking.

October 26, 2010 4:39PMET

By John Sauro

Inflation Concerns Move Bond Prices Lower & Rates Higher 

      Over the past several months the ever growing fear of deflation has helped to put Mortgage Bonds into the stratosphere while keeping Mortgage Rates low.  

      However, in the last 24 hours, future deflation/inflation expectations have changed and investors beleive the Fed will be successful in creating inflation through their “Quantitative Easing” plans. This was obvious with yesterday’s results of 5-Year Treasury Inflation Protected Secutities (TIPS) Auction. For the first time TIPS were sold with a negative yield at -0.55%.

      Tips investors are compensated at a higher amount based on an increase in consumer prices- that’s the reason for buying “Inflation Protected Securities.” The Pricncipal of a TIPS increases with inflation and decreased with deflation, as measured by the Consumer Price Index.

      Additionally, Merrill Lynch said that the firm is reducing their investments in Mortgage Backed Securities.

So, What does this mean?

      The media has realized that the Fed is warming up their money printing presses and will most likely open the gates to “Quantitative Easing” after their  Nov. 3rd Fed announcement. 

      This means that those who are thinking that home loan rates will be moving dramatically lower after the November 3rd Fed announcement may be very dissappointed.

I reccomend locking into rates at this time.

Friday, October 22, 2010 5:45 PM ET

By John Sauro

Mortgage Bonds Repeat Last Friday’s Losses

Bonds moved lower, which pushed mortgage rates a bit higher today. However, the good news is that Bonds stayed above the 25-day moving average, which they have done for the past month.

Bonds declined as investors cashed in profits ahead of the weekend and on the news that the Treasury will be selling $109B in government debt next week. The benchmark 3.50% coupon fell 22 basis points at $100.94.

Quantitative Easing Update

St. Louis Fed President James Bullard said yesterday that the Fed may want to purchase Treasury Securities in $100B monthly increments to improve conditions.  Mr. Bullard is now the third source to say the Fed will purchase $100B a month, in just the past 48 hours. It appears the Fed is preparing the markets ahead of any formal announcement, as not to shake up the markets. There has been speculation that the Fed intends to buy $500B worth of US Treasuries over 6 months.

I recommend carefully floating, not locking into mortgage rates, as we take direction form both the Bond and Stock markets.