No Need To Rush Into A Rate Lock

A: With the stock market selloff yesterday, Greenspan mentioning the 'R' word in a speech, Cheney being targeted by the Taliban, Asian stocks selling off, and corporate profits and margins showing signs of peaking, bond prices rose bringing yields down. As you know from reading UrbanDigs, a great indicator as to the short term movements of lending rates is the yield on the 10YR Treasury note. Lets see what has happened the past 5 days that leads me to think mortgage rates might come down a bit more in the very near term.

In my past post titled, "Why Rates Are Going Higher", I discussed the relationship of short term rate swings to the movements in yield of the 10YR Treasury Note. Specifically, I stated:

With the 10YR moving significantly higher over the past few months, it tells me that the bond market is a bit more worried about inflation and future monetary policy than the stock markets. Whatever the reason, it should cause lending rates and your credit card rates to RISE over the next month or so.

And that it did! The average 30YR fixed jumbo rate climbed from 6.05% to about 6.25% or so from mid December to early February. Thankfully, it seems the trend is about to change course.

Bankrate has a graphing tool that lets you compare mortgage trends to economic indicators, but seems very aggressive in their reporting. I don't recall rates being as low as this tool suggests, so just use it to show the relationship between rate trends and the 10YR:



Now, take a look at what the yield on the 10YR Treasury note has done in the past 5 days alone; showing a drop in yield to about 4.5%:



With the sharp drop in yields expect lending rates to continue to follow suit over the next week or so and drop a bit further.

Conclusion: If you have recently signed a contract of sale and deciding what day to lock in that rate, you probably have time on your side. While anything can happen on a day-to-day basis, for those who like to eek out as much savings as possible before they lock in a rate, keep an eye on the 10YR (watch CNBC or read Yahoo Finance) in the coming days to see if this trend continues, holds, or reverses course. If it continues to fall or holds steady, a slight drop in lending rates will likely be in our very near future.

Otherwise, no need to focus too much on this. It shouldn't have any impact on what is going on right now from a macro standpoint and shouldn't cloud your investment decision to buy or rent.