Why Psychology > Data This Week In Mortgage Rates

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For just the second time in two years, the tide in mortgage rates has shifted discernibly.  Unlike last time, though, the news is not good for mortgage shoppers.

We talk about it a lot: mortgage rates are not picked from thin air.  Just like stock prices, they are based on facts, opinions, and psychology.  There is always data to interpret but, for the first time since last Fall's precipitous decline in rates, psychological factors are now the driving force. 

In trading circles, it's called "technical trading" and it can be a powerful force.

Technical traders don't watch data; they watch patterns.  This is very different from "fundamental traders" that make decisions based on numbers and politics.

Both philosophies have merits to and are legitimate so we must pay attention to both of them when trying to predict future mortgage rates. 

As my regular readers know, I prefer to discuss markets from a fundamentals perspective because it's more interesting to me.  I like breaking down world events into plain English and explaining how they tie into home financing.

Technical trading, though, however cold and robotic it may be, is always in the back on my mind.  That's because if you turn your back on the technicals for even a moment, you could get stabbed in the scapula.  The markets move fast.

This week is a terrific example. 

Mortgage rates have eroded quickly since Tuesday afternoon as technical traders react to a chart mapping mortgage bond prices over time.  According to the chart's pattern, mortgage bond prices should continue to drop in the future and -- rather than be the last one to sell -- traders are selling now before prices get really bad.

Lower bond prices = higher mortgage rates and that is exactly what we're seeing now.

If you're shopping for a mortgage, today would be a good day to lock.  For now, the trend is not your friend.