Tuesday Real Estate & Mortgage Rate update

Early this morning all financial markets were generally unchanged; the 10, MBSs, stock indexes and currencies, hardly any changes from yesterday. No news overnight that moved markets, and not much in the way of data today. Not much new from Ukraine this morning; the European Union told Russia it must change its stance on Crimea by next week or face possible sanctions. EU leaders will discuss penalties on March 17 unless there are clear changes in Russia’s actions, German Foreign Minister Frank-Walter Steinmeier said today. In Russia ousted Ukrainian President Viktor Yanukovych warned of a possible civil war. Financial markets here and globally are watching the situation but still there is no direct reaction in markets over the Russia/Ukraine developments.

MBS values set to decline?; according to a report in the National Mortgage News after years where prepayment speeds were increasing, now prepayments are slowing. As extensions continue many investors are not as interested in MBSs as they were after the sub-prime collapse. As interest rates increase and prepayment speeds, especially of guaranteed MBS, are falling precipitously, extending the maturities of MBS. This trend is likely to cause future declines in MBS values. A number of important structural factors are contributing to this development, such as:

•Rising long term interest rates, albeit with some downward volatility due to risks in emerging markets and geopolitical issues;
•A steep decline in the number of newly defaulting loans primarily due to improving housing values, stronger underwriting standards of newer loans, loss mitigation and more sustainable mortgages due to refinancing at record low rates;
•A substantial drop in refinancing activity after multiple refinancing waves.

Technicals still very slightly bearish, just as they were slightly bullish for a month before the 10 rose over its three key averages (20, 40, and 100 day) and the 14 day RSI climbed over the 50 level. Next up is 2.80%, the level that has been a key pivot point for the 10 going back over two years. All about the economy but as you know there are no measurements that exclude the bad weather, and we won’t see any until April when March data rolls out. 

I am suggesting that if you are not closing your loan in the next week that you should float your rate throughout this week. There is little chance that rates will improve much, but if you need the extra time for a rate lock then take advantage of it. Follow my blog for Texas updates including Houston, Conroe, The Woodlands and Spring.