Rate Watchers

(As seen on The Chicago 77)
19 November 2010 – “Sometimes you eat the bear and sometimes the bear eats you.” A simple quote that definitely describes the most recent week in the mortgage markets. Unfortunately it was more of the latter for those hoping for the salad days of conforming Fannie Mae and Freddie Mac conforming loans below 4.375%
Since Friday of last week, mortgage rates have gotten pummeled. The exasperating thing, however, is that there is no substantive reason for this radical a shift. There was good economic data highlighted by continued improvement in employment numbers and a gangbusters initial public offering for General Motors, but this should have been somewhat offset by the financial woes in Ireland and the understanding that incremental improvement does not a recovery make.
Conventional wisdom is chalking up the recent spike in rates to a combination of several factors. The first is over investment into the bond market several weeks back. Simply put, too much money had migrated into the bond market and the correction that we are seeing was an expected outcome. Secondly, the Fed’s actions with Quantitative Easing have been limited to short-term Treasury Bills. This has an inverse impact on longer-term debt such as mortgages, which are most closely tied to the 10-year. In short, there should have been some movement, but not to the extent that we have experienced.
This puts us in a bad news/good news scenario. On the bad side, we may have seen the bottom of this rate cycle in late October and early November when the market was anticipating the Fed action, but had no specifics on the plan. On the good side, the bond market is now generally believed to be oversold. While we can and will likely see an overall trend upward, we should see some mild improvements creating short windows of opportunity to secure a good rate. The ability to do this will, in my opinion, be based on preparation and those rate watchers who have submitted an application will be able to lock and close in a reasonable amount of time. If you wait, you will lose.
I am recommending that my clients closing in 30 days or less LOCK as there is way too much risk and volatility. For those closing in more than 30 days, I would suggest FLOATING with a finger on the trigger to LOCK on any improvements.
This article was written by Doug Katz, at doug@chicagobancorp.com