Rate Update November 3, 2010

Mortgage rates are better today.

Today is the day we’ve been waiting for since September 21st when the Fed dropped the hint hat they would engage in QE2.  Since then rates have improved and then reversed higher.  Since last week I have recommended a floating position up until today and that position has resulted in better rates.

The question now becomes what to do from here?  Last time the Fed introduced quantitative easing into the economy mortgage rates dropped significantly.  However, I get the impression that this go around will be different for a couple reasons.

First, the Fed has explicitly stated that their objective is to raise inflation back to the 2% target.  Inflation is the primary driver of mortgage rates so assuming they’re successful we’ll see long-term rates rise in response to higher inflation expectations.

Second, overall the economic data over the past few weeks has been better than expected.  If the economic recovery stays on track then we would expect long-term rates to rise.

I am shifting to a locking position today.  We may see rates drift a little lower (.125%-.25%) but I think there is more to lose than gain at this point.

Current outlook: locking bias