Rate Update October 9, 2008

Mortgage rates are up sharply this morning marking the volatility that is characteristic of this market.

As we touched upon in yesterday’s rate update the Fed, along with 5 other central banks, did cut short-term interest rates yesterday in a move to help bolster the economy.  However, as I’ve pointed out before a cut in short-term interest rates DOES NOT mean mortgage rates will also move lower.

The unprecedented level of volatility makes predicting the direction of interest rates VERY difficult.  The one thing we are watching and that has been significant in the past is the technical trading level of the 200-day moving average for mortgage-backed bonds.

The 200-day moving average is simply a calculation of the average price of mortgage-backed bonds over the previous 200 days.  When bond prices get near this level they tend to “bounce” away from it.

Currently mortgage-backed bonds are trading near the 200-day moving average.  As long as prices stay above this level we believe rates will move lower.  However, should prices break through this level and fall below, we will shift our outlook to locking.

Current outlook: floating as long as bond prices stay above 200-day moving average.