Taking a break from charts for a moment, here's the day at-a-glance (and perhaps a bit of yesterday).
As our illustrious Mr. Q pointed out yesterday was a snoozer. The food for MBS thought has been a bit sparse since the gluttony of "Bailout 2.0," you know, the one where the Fed is supposed to be buying 500 bln of MBS?
Yeah, so when does that happen again? Great question. Inquiring minds want to know. This is the dark horse in our race for the rest of the year. As you'll see in the next post, many signs are pointing to a moderate retracement before the end of the year, but the actual money changing hands from the bailout would override several of the fundamental and technical indicators that might make us consider locking. Furthermore (and here's where the intellectual considerations get really dizzying), one also has to consider or "guess" rather, as to what percentage of market participants are pricing this anticipation in and how many are waiting for the ink to dry? So even if it hasn't happened, since we obviously saw massive tightening after the announcement, we cannot truly know if that tightening was too much or too little. The perenial dictum with events like these is that IF (and that can be a big "if") the plan indeed goes ahead as, uh, planned, ahem, then we will see much more tightening and price positivity. Or so the lesson was from Frannie 1.0 (until Lehman showed up to the party). So clearly I can not choose the cup in front of me! But you would have known that so clearly I can not choose the cup in front of you!
What to do? The nice thing is that we have a few good indicators--wires to trip, if you will--that will better inform us as to locking vs. floating. If we didn't have the potential MBS injection looming, it's a sure locker. But we do, and so we have the unhappy fortune of playing these cards. Know this: we may in fact trip the "lock trigger" only to have a major announcement of the injection follow hard on those heels. There's nothing you can do about this after-the-fact. But before the fact, in times like these, perhaps some practical advice from originator to originator is more germane that lock/float crystal balls. Position yourself with as much flexibility as possible. What that means to you can be different depending on your business structure, but if you're a broker for example, it wouldn't be a bad idea, if you need to lock, to do it with lenders who have the best float down or renegotiation policies.
Also, be wary of lock times. Expect this to be an uncommonly busy December, Jan, and Feb for the mortgage market. Some lenders are staffed for it, others aren't. What normally would be an easy 30 day lock, may very likely be worth the .125 for the peace of mind of another 45 days.
Above all: keep the big picture in mind. We've gained a lot of ground in rates very quickly. It's probable that they will slowly improve into the beginning of next year at least, however it's also a given that not all those weeks will be winners. Without huge potential gains to miss out on (since it's harder to go higher at these price levels than to fall lower), and with so much potential refi and purchase business stimulated by the nation-wide buzz, there are some that would advocate the "lock and move on" philosophy. If you've been on the fence on that one, now may be a time to consider it. That doesn't mean lock right now, but just be ready to consider it if we trip one of our lock triggers, the first of which being in the 62-38% retracement zone from the previous post's graph. For some, counting their gains from "where they came" as opposed to "what if things get better" allows them to move on to new business and even though margins might not be maximized on each deal, the net effect is more business with less effort and stress.
Whew... We'll take a break for a moment and be back with Home Sales data and a few more charts for you.