Mortgage Rate Update January 21, 2014

Mortgage rates are unchanged from last week. As a reminder the financial markets were closed on Monday in recognition of Martin Luther King Jr. Day.

The economic calendar is very light this week which means mortgage rates will likely respond to technical trading patterns, the stock market, and anticipation of next week’s Fed meeting.

From a technical standpoint mortgage-backed bonds (MBS’s) are trading in a very tight range in between the 100-day moving average and a technical layer of resistance at 104.09 (see below).

Anytime MBS prices get compressed like this I get worried about a “break-out” which is when prices break out of the range in a sharp manner. This can lead to an abrupt change in interest rates for better or worse. Given that my long-term outlook calls for rates to move higher this could spell trouble.

On January 28th-29th the Fed will meet again for their regularly scheduled monetary policy meeting. With December’s weaker than expected jobs report some analysts think the Fed may keep the current level of $75 billion per month in bond buying in place. However, I don’t believe the Fed will alter course. They will continue to taper unless consecutive employment reports miss. If the markets buy into this outlook it could put upward pressure on interest rate.

Current Outlook: locking bias