Mortgage Rate Analysis
Here is a brief analysis of the mortgage market. I will focus on both fundamental and technical analysis.
There are many ways to analyze the fundamental aspects of the mortgage market and today I will look at one aspect: the ISM services index. This index gauges expansion/contraction of the non-manufacturing or the service sector. This is important because over 80% of the US non-farm employment is consisted of service jobs. If this sector is expanding, then we can expect higher mortgage interest rate including home loans.
Here is the history of this index:
The trend of the index since November 2009 has been going up, which signals potential expansion. The index sits at 50.5. The benchmark is 50 (expansion above 50 and contraction below 50). We are now slightly above 50. The other thing that we need to look at is the consensus, which has expected 51, so whatever little expansion there is, it falls short of consensus.
In short, as far as the mortgage market is concerned, it is still sitting on the fence.
Let’s take a look at the technical picture:
This is a one-month chart of the FNMA 30-yr bond, which is inversely proportional to mortgage rate (when one rises, the other falls). You can see how this bond has pretty much formed a straight line in the last ten bars and it has been held by the 100-day moving average (yellow line). Let’s wait and see whether it can break above the 100-day MA, which will signal a drop in the mortgage interest rate. We belong to a community of mortgage brokers and many of them give their opinions whether they will advise their clients to lock-in the rate or let it flow. You can see today’s poll result in the bottom-right-hand corner: 100% say lock-in the rate.
What do you think which direction will the mortgage rate move?
