Mortgage Rate Forecast | Going Lower?

A quick post after reviewing the price action on the mortgage-backed securities (MBS) I want to share what I see.

So, what is it?

Well, not to bore you with the nitty-gritty technical details that provide a foundation for what I am predicting but, take a look at the last few days of price action depicted below.  You can see the last four days price is moving horizontal in small daily ranges.

This is occurring after MBS prices have moved back ABOVE their 200 day moving average (depicted in the blue line).  This setup is generally bullish;  meaning odds favor higher prices ahead.

As a refresher, higher prices lead to lower mortgage rates, and vice versa.

Who knows what the catalyst for the move higher in price from here will be?  It might be some news report.  It might be something from the equity markets?  It really doesn't matter but the technical setup is ideal for a move higher.

Stay tuned.

3 Month Fannie Mae 4.0% Coupon (MBS) Price

Brett  Grendahl

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Economic Weakness Persists and Mortgage Rates Move Lower

Good morning gang,

I haven't written a blog post in a bit, super busy on many fronts and nothing too much to report.  So, why waste the time writing and tire your eyeballs on the trivial, right?

Well, after looking at the price action in the mortgage-backed securities market today there is news worth sharing.  So, here we go!

What is it?

Well, the September Jobs Report was released today.  Normally, this monthly report comes out on the first Friday of the month but with the government shutdown it was delayed.  Now, the report came out at 148,000 jobs versus the 180,000+ number the market expected.

Mortgage-backed securities (MBS) are up strong on the news and, more importantly, prices have moved back above their 200 day moving average.  Remember, as MBS prices go up, mortgage rates go lower.

Look at these charts:

3 Month Chart on Fannie Mae 4.0% Coupon

The chart above shows how today's move up in price has moved above the 200 day moving average, shown in the blue line.

One Year Chart on Fannie Mae 4.0% Coupon

The chart above shows a longer-term view of the price action.  You can clearly see how prices fell hard from May through September.  From all that choppy price action in August and September prices formed a base of support and have since moved higher.

From the technical setup the odds are increasing that we will see mortgage rates move lower.  I expect that a good price target is a conforming 30 year fixed rate around 4.0%.  For now, I don't think below 4.0% with no points will become available but, in this manipulated market, who really knows, right? :)

Another wrinkle to these improving rates is that we might see the conforming fixed rates move back below the jumbo fixed rates.  We are in a time of a weird market anomaly where the jumbo rates are sometimes pricing lower than the conforming ones.  This won't persist forever.

Bottom line:  expect better mortgage rate pricing in the weeks ahead.

Brett

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The Fed, Tapering and Unemployment Rate Target

Good morning folks!

It is a rainy morning here in Minneapolis and the changing of seasons is being fully felt by me.  A very different feeling than the past few years living in Northern California.  My daughter is excited for snow.  Let's hold off a bit on that, can we? :)

Okay, the announcement from the Federal Reserve Open Market Committee's meeting comes this afternoon.

For months I have expected this to the date that they announce the beginning of tapering of their Quantitative Easing (QE).  The market has been talked there and this is still expected.

I think they will announce tapering to begin in October at a rate of $10-15 billion per month.

Mortgage rates have priced this in and we will likely see a rally in mortgage bonds (driving mortgage rates a little lower) on the news.

Also, I would not be surprised to see the Fed also announce something like lowering the unemployment rate target.  The unemployment rate target is what they've communicated to the market as their trigger point for when they will raise their Overnight Rate.

By lowering the target they will give the market something to offset what they take away with the beginning of tapering.

It should make for an interesting afternoon.

Brett

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Fall Brings Market Changes

Good morning,

Okay, back at writing to the blog after a very busy August and early September.  You can really feel the crispness in the morning air here in Minnesota, the tell-tale sign of the changing seasons.

A lot of change in place in mortgage finance.  I'll begin writing in more depth on these topics in the coming weeks.  For now, here is a quick overview of the topics that are catching my interest and thoughts.

Syria
The global politics and potential unrest from military conflict are unknown.  Need to keep an eye on developments here.  Weird days when Putin seems to be doing better statesmanship than Obama.

Fed Taper
September 18th is this week and this is where I fully expect the taper to begin.  With Summers now bowed out of the options for a replacement for Bernanke the equity and bond markets are rallying this morning.  Yellen is the favored pick now.

Dodd-Frank
More implementation of new rules coming from the Dodd-Frank legislation looms come January 1st.  The industry is abuzz about the Qualified Mortgage rules and Loan Officer compensation models out in the marketplace.  Lots to digest here.

Conforming Loan Limits
Expect these to be lowered come January 1st.  They were moved up to $417,000 back in 2006, stayed there and now look to be going lower.  This will further tighten underwriting and change the marketplace.

Mortgage Rates
Today, mortgage bonds are up strong on the news that Summers is out.  This price action breaks the downtrend so we might see lower mortgage rates for a few weeks.  Great time to be locking in  if you have a mortgage application in process.


Those are the big buckets of thought for me.  I'll be sharing more in the coming weeks.

Have a great day!
BG

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Can Mortgage Rates Improve Here?

Good afternoon,

Quick post on mortgage rates as mortgage bonds sit at a key technical level.  Reminder, as mortgage bond prices go down, rates go up and vice versa.

If you look at the 3 month chart below on mortgage bonds you can see they've been moving lower in price.

Take important note of the green line I drew.  That line represents a level that has proven to be stiff price resistance to any move higher.

Well, today's positive action in price (up) is breaking that trend line.  Will this hold?  Will bonds head higher in price?  I don't know.  Let's keep a close watch.

Mortgage Rate Monitoring

Quick note, we have changed our focus to the FNMA 4.0% coupon for gauging mortgage-backed securities trading, and mortgage rates.

Just a few months ago we were watching the 3.0% coupon, then to the 3.5% one and now stair-stepping up again.

BG

Update on Mortgage Bonds

Quick update with a chart (below) on mortgage bonds.

Price is stable and the trading range is narrowing before we get news from the Federal Reserve on Wednesday and the monthly Jobs Report looms on Friday.

Where will we go from here?  The news of the week will likely be the catalyst now.

3 Month Price Chart on Mortgage Bonds (FNMA 3.5% coupon)

If we get an upward break from here we should see a little room to run higher and, subsequently, some lower mortgage rates for a few weeks.

Brett
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