We're right back where we started at the beginning of August. Last month, mortgage rates started just under 5% and spiked during the first week, as high as 5.5%. I thought that rise was short-lived:
If you're floating, lock the rate in today. If you're closing towards the end of August, there is a substantial opportunity for rates to dip to 5.0% in the next three weeks. I wouldn't rush to lock-in until you get close to that mark.
Mortgage-backed securities (MBS) have been on a 7-day tear. Higher MBS prices lead to lower mortgage rates. Today, we are right where we were on August first; mortgage rates at 5.0%. As bullish as I was about lower near-term rates last month, I'm am conversely bearish about mortgage rates at the beginning of this month. I think we'll see the same pattern of acceleration to the 5.5% range, for the next 21 days. I expect rates to retreat to the existing levels for 2-3 weeks thereafter.
I am still biased towards floating but my short-term bias is always to take advantage of market movements in our favor. If you look at the third chart here, you'll see that MBS prices rose from 99 5/8 to 100 5/8. fo the FNMA 4.5% coupon. A par (100) price loosely translates to a retail mortgage rate of 5.25%. As MBS prices approach 101, we can expect retail mortgage rates of 5% or better. Consequently, MBS prices approaching 99 portend a 5.5% retail mortgage rate.
What would make MBS prices break through 101 and cause retail mortgage rates to stay below 5%? Devastatingly weak economic figures that suggest a DEEP "double-dip recession" is upon us.
What would cause MBS prices to collapse below 99 and send retail mortgage rates north of 5.5%? A REALLY hot economy that traders consider to be sustainable; losing 400,000 jobs monthly does not suggest that.
What should you do? If you're closing in September, lock your mortgage rate now. If you're closing in October, a 60-day lock at these levels would probably cost you about .5% discount fee. I think we'll see retail mortgage rates rise towards 5.5% and fall the first week in October. You're probably safe to wait but that .5% fee guaranteees it.
If you're closing later this Fall, the long-term locks cost closer to 1% discount fee. I think you'll have a chance to lock-in today's mortgage rates, once again before Halloweeen, after a spike upwards.