The beginning of this week has seen another slight improvement in Mortgage Bond Pricing (which lowers rates).  On Friday, a low consumer sentiment reading caused rates to improve in the morning, although they gave back many of those gains in the afternoon.

Yesterday, the data was not on our side as Leading Economic Indicators were slightly stronger than expected.  However, the stock market's reaction to the data was lackluster which helped us eke out some small improvements yesterday as well.

Today, there is a volatile mix of information.  A key inflation report was mixed which has caused weakness in stocks.  Normally bad inflation data causes rates to worsen, but traders of mortgage bonds have been "hedging" a little more than normal regarding inflation so the "mixed bag" report would have a more or less neutral effect.  But factor in the stock market sliding lower, and traders are enticed to "lock in" their returns by moving money to the bond market (including mortgage bonds), which lowers rates.

Still, we are not appreciably lower than we were on Friday and there is limited data (in terms of scheduled reports) for the rest of the week.  So the stock market will play a key role in the direction of mortgage rates.  In general, as it moves up, so do rates.  So if you have a loan to lock, or are considering refinancing, you are actually hoping for the Dow to drop!  Some analysts think that will occur this week because we have to "stop on our way up," and other analysts think it will occur because "we have to go back down."

Whatever the case, there's no way to be certain.  I would not underestimate the propensity for traders in this market to act emotionally and latch on to any positive news.  Historically over the past 4 months, every single time that rates have been in this range, they have failed to move lower.  Sure, there will come a time where they do actually "break through," but it's difficult to predict exactly when that will occur.  It could be 6 hours, 6 day, or 6 months.  So although, you may seem some gains if you float, the potential losses are much greater.  Unless you are extremely bearish on our economic outlook and are willing to bet your interest rate on it, locking now is a fine decision.  If you are one of the aforementioned bears, make sure you stay tuned to stocks, bonds, and this blog.