Phoenix Mortgage Rates Report: October 10, 2007

brian_smile.jpgI’m often asked how I come up with my advice to lock or float the mortgage rate for the Phoenix Mortgage Rates Report. Well, I read a lot, that’s for sure. I read and the Mortgage Market Guide research which gives me access to real-time quotes of mortgage-backed securities. The charts I review, of mortgage-backed securties prices, give me an idea of what the short-term trend looks like.

Let’s look at today’s chart:


This chart show the prices of highly-traded mortgage-backed securities. I show it with permission from the Mortgage Market Guide.

There are two things that are worrying me right now:

1- Look at the green bar on the right; the price for the FNMA 6.0 mortgage bond closed below par (or 100). That means that the bond, issued at the beginning of the year, is worth less than the original issue price. While that means little fundamentally, it means a whole lot psychologically.

2- Notice that the price closed BELOW the blue line. The blue line is the 200 day moving average. This means that prices seem to be trending lower which means mortgage rates can rise.

Can prices bounce back? Of course they can. Friday is a big day, however. The retail sales’ figures are being released Friday. We’ll get a glimpse into the consumer spending behavior. If the consumer has been absent, the economy is softening which could mean more Fed cuts- that would be great for mortgage rates. If that number demonstrates that the consumer isn’t affected and has been buying plasma TVs at Costco, it’s a safe bet that interest rate cuts will have stopped.

The affect on the mortgage bond market could be brutal. Mortgage bonds are weak (they’re below the “par” pricing and below the 200 day moving average). One little hiccup and we could see prices drop all the way down to the red line. That drop in mortgage bonds could translate to a full .25% or .375% hike in mortgage rates.

Did I confuse you? I hope not. This is pretty boring stuff to the non-professional. Arizona home owners need a mortgage every 3-4 years at most, right? The important thing is that you deal with a mortgage adviser who has access to these tools and knows how to interpret them. You should be locking-in your mortage rate at application, at least until we see what the numbers look like on Friday.

How do I know this? Look at the chart ! Contact me for a better explanation. I’m happy to show you these charts online and talk you through it on the telephone.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at