Mortgage Rate Forecast – May 13, 2011

Locking Stance:  LOCKING      Mortgage Bonds:  +19bp

Today’s Mortgage Rate Forecast is a late one, I know.  I did not get to it before my body “crashed” after being up virtually all night.  The bottom line…yes, mortgage backed securities improved and, no, they still have not broken the 200-day moving average so nothing has genuinely changed.  This being Friday the 13th, spooky things happen, at least for those of you who are superstitious.

It is not uncommon to see MBS prices bouncing back and forth.  Anyone following them, and especially those following my mortgage rate forecasts for a while, know this and understand I take those movements into account when I do my forecasts.  Today’s data, as mentioned yesterday, got started with the Consumer Price Index (CPI), which came in at 0.4%, inline with expectations.  However, Core CPI (less food and energy) was at 0.2% versus the 0.1% expected, and that raises some concerns despite inflation still proving tame.  Additionally, year/year CPI and Core CPI are on the rise, coming in at 3.1% and 1.3% respectively.  Consumer Sentiment was the other item on the agenda for today, coming in at 72.4, above the expected 70.0and up from 69.8.  Pessimism is on the decline and inflation concerns are mixed within the report.

With the economic reports generally being unfavorable for MBS prices, and thus mortgage rates, why are we talking about a rally?  Well, technically speaking, it had to happen.  MBS prices bounced off support and thus rallied, this one all the way up to their 200-day moving average before being beaten back yet again, another technical play.  So, the bottom line again is that nothing has changed, though it is setting up a potentially bad pattern for the future.  More on that in Monday’s radio show.  Positive economic news overseas got the dollar falling initially, but it hit technical factors as well and rebounded.  On an interesting note, a report said Osama planned to kill Obama (bin laden planned to kill our President), which I find illegitimate since our President and his appointees are doing a smashup job destroying our country without terrorist assistance.    Nevertheless, it seems almost as though the markets reversed (stocks rallied) after the report.  Things that make you go hmmmmmm…

What does this mean for Mortgage Rates? Mortgage rates improved this morning, but they also are failing yet again to break resistance and push lower.  As a result, the short-term and long-term outlooks are unchanged.  Depending on how things play out as next week gets started, those outlooks could get worse.

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