Rate Update November 23, 2009

Mortgage rates are slightly higher from Friday.  On Friday we talked about how we thought we were beginning to see the US Dollar stabilize versus foreign currencies.  However, this morning the Dollar is getting pounded again.  The cheaper currency has opened the flood gates once for foreign investors to come in and buy US-denominated assets.  As a result the equity and bond markets are trading higher in early morning trading.

As this chart shows mortgage rates have dipped in the last two months of the year each of the past 3 years.  This may be due to the fact that investors have elected to “lock in” gains in their portfolios by selling out of volatile equity positions and buying less volatile fixed income positions such as mortgage-backed bonds (MBSs).  The additional demand for bonds then drove long-term yields lower.

Since mortgage rates remain below 5.00% we are going to remain in a locking position as we still believe the risks of floating outweigh any potential benefits.

Current outlook: locking