How to Fight Mortgage Rate Volatility

Mortgage rates are suffering through another volatile week, causing problems for rate shoppers and home buyers.

After falling Monday and Tuesday, mortgage rates surged Wednesday and Thursday. The momentum higher appears to be carrying into the weekend, too.

There are several data-related reasons for the mortgage market's spastic activity this week:

1. Unemployment claims fell
2. Leading Economic Indicators rose
3. Inflation readings are tame

But while each of the data points above fueled mortgage rate volatility, it's not the data that's making markets move the most. It's the psychological impact of the data.

See, data tells us about the past. It measures and reports on what's already happened. Unfortunately for rate shoppers, mortgage markets are not made on data from the past -- they're made on the expectations of what will happen next.

Mortgage rates reflect Wall Street's opinion of the future.

In reading the papers and watching the news, you'll notice ongoing debate about the U.S. economy. It's unclear whether the recession is worsening or improving.

On one hand, data is weak and sub-optimal. On the other hand, the data is not nearly as weak as it was 6 months ago and, in some cases, it's strong. To some, this is a signal that a recovery is already underway.

Or, it may just be a blip.

We can't be certain in which direction the economy is headed and the same can be said for mortgage rates. Because sentiment is changing so often, though, it forces us to be on our toes.

The last few months have been marked by large mortgage rate swings across small windows of time. A rate that's offered in the morning, for example, is rarely available in the afternoon. Therefore, do your rate shopping in a compressed period of time and be ready to lock your rate at a moment's notice.

When markets move, they tend to move quickly.

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Adjusting For Cost Of Living Differences After A Non-Local Move

Moving to a new metropolitan area requires adjustments. There's new streets to learn, new weather patterns to get used to, and new social cultures to assimilate.

There's also new costs.

Just like home values vary by area, so does the Cost of Living. To visit a doctor in Chicago, as an example, costs a person more than to visit a similar-type doctor in Des Moines.

Cost of Living adjustments can't be ignored between two cities because it changes a household's budget.

And while it's a challenge to know exactly how far your dollar can stretch in a new town, Bankrate.com hosts a helpful Cost of Living Comparison Calculator to make the math a little easier. With categories such as dry cleaning, groceries and beauty salon, the calculator goes extra deep into the typical costs to a household, and can help families to make more realistic budgets.

The calculator also shows the equivalent household income between any two metropolitan areas.

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The Double-Edged Sword That Is Rising Housing Starts

After being range-bound since the start of the year Housing Starts unexpectedly jumped in May, surprising analysts and Wall Street.

It's the latest in a string of housing-related data that suggests a real estate recovery is already underway.

Housing Starts is an important statistic for a number of reasons, but to homebuyers and home sellers, its immediate impact is on home inventory.

Home values are based on supply and demand. When the demand for homes exceeds the supply, values tend to rise. Conversely, when supply exceeds demand, values tend to fall.

When Housing Starts increase as they did in May, therefore, unless there's a corresponding increase in demand, home prices get pressured downward.

Lately, that off-setting demand appears to be present.

With home affordability near record-high levels, mortgage rates well below historical averages, and the first-time homebuyer tax credit in place, Existing Home Sales are up 16 percent on a "raw numbers" basis versus last month and home supplies are lower versus last year.

Rising Housing Starts can a double-edged sword to a recovering economy. It's a strength signal that builders are more optimistic right now, but too much optimism can lead to a glut of unsold homes that pushes housing back to the brink.

So long as demand outpaces supply, however, inventories should reduce and values should move higher.

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What Consumer Sentiment Surveys Mean To Housing Markets

Americans are feeling better about their budgets right now, raising the possibility of a full economic recovery.

According to a University of Michigan and Reuters, Consumer Sentiment rose for the fifth straight month in June.

Consumer Sentiment is now at its highest levels since September 2008, the month in which Lehman Brothers failed, Fannie Mae and Freddie Mac were nationalized, and the global financial crisis is believed to have peaked.

Rising confidence levels are important to the economy -- and to housing --because a confident consumer is more likely to make the big-ticket purchases that propel the economy forward.

This includes buying new homes.

That said, the Consumer Sentiment Survey has its flaws.

For one, the survey's sample set includes just 500 families. This is hardly a cross-section of America. Secondly, when people feel better about their finances, it doesn't always lead to additional consumer spending -- it could lead to more saving.

What people say they'll do and what they actually do can be two very different things, but if consumer spending does increase in the months ahead, expect home sales to benefit on the willingness of families to "take more chances" and expect mortgage rates to suffer on concerns for inflation.

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What's Ahead For Mortgage Rates This Week: June 15th

The mortgage market roller coaster continues. Markets worsened badly in the early part of last week, before rallying into Friday's close.

Overall, mortgage rates were slightly higher for the week even though -- briefly -- they rose to levels not seen since November 2008.

Last week marks the third week in a row and the sixth out of the last seven that mortgage rates increased.

It's not all bad news for mortgage rate shoppers, however. The market's surge higher appears to be slowing and its momentum may start to reverse.

See, mortgage rates don't come from thin air. They're based on the price of mortgage-backed bonds and, over the last few weeks, it seems as if nobody on Wall Street wanted anything to do with them. A massive sell-off that caused bond prices to plummet and mortgage rates to soar.

Freddie Mac says rates are up 3/4 percent in the last 3 weeks but loan officers will tell you that's undercutting it. Conforming mortgage rates are up more than 1 percent since Memorial Day.

The biggest reason for the sell-off was that markets feared a runaway inflation scenario. The U.S. Treasury has assumed an unprecedented debt load this year and to repay it, markets expect the government to print more cash -- an inflation-inducing scenario.

However, when a number of high-profile investors and a country said last week that their faith in the U.S. economy remains strong, markets viewed it as an endorsement of government-issued debt. It served as Thursday and Friday's rate-dropping catalyst.

This week, mortgage rates will move on three points:

1. Data, including key inflation and housing reports
2. Rhetoric, including 5 Federal Reserve member speeches
3. Momentum, including technical trading patterns

It's unclear whether these factors will lead rates higher or lower, but one thing has been clear lately -- when mortgage rates change, they change quickly.

Therefore, if you're shopping for a rate and find one that fits your budget, consider locking in right away. With rates changing every few hours, it's likely that if you wait too long, the rate will be gone.

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