Archive for the ‘Mortgage Rate Watch’ Category

Mortgage rates were almost perfectly unchanged today.  That leaves them right in line with last Friday's levels.  I devoted a considerable number of words in yesterday's article to explaining why most other articles about mortgage rates were inaccurate yesterday.  Suffice it to say that the absence of change compared to last Friday fully drives home the point I was making.  In short, due to the primary source data that most news organizations use for their big mortgage story each week, the average article proclaimed a nice drop in rates.  In actuality, that drop happened at the end of last week.  From there, rates have barely budged.  

Be careful what you read--or perhaps, who you trust--about mortgage rates today.  There's a lot of misinformation out there.  Don't be mad.  No one is out to get you.  No one is out to intentionally deceive you (at least not when it comes to today's mortgage rate news.  Rather, the misinformation is a byproduct of a few unfortunate realities that we contend with on a regular basis.

The first reality is that Freddie Mac's weekly rate survey is widely relied upon by media outlets.  There's nothing wrong with Freddie's data as long as you understand what you're getting.  It is a stale, loosely accurate report of what a few lenders are offering on a few days of any given week.  Over time (preferably, a LONG time), it does a nearly perfect job of capturing the ups and down in mortgage rates. 

Mortgage rates fell only modestly today despite a much stronger move in broader bond markets.  I spend a lot of time espousing the fact that rates are based on bonds, so it's fair to wonder how days like today happen.

Indeed, interest rates are based on bonds, but there are a wide variety of rates and bonds!  It's a common misconception that mortgage rates are actually and firmly linked to the 10yr Treasury yield.  In reality, this only appears to be the case because the bonds that underlie mortgage tend to move in the same direction as 10yr Treasuries.  The magnitude of their moves is also generally the same, but there are notable exceptions.  Today was one such exception.

Mortgage rates were sideways to slightly higher today, depending on the lender.  With the exception of the past two days, this leaves us at the best levels in more than 3 weeks.  In general, that move was made possible by financial drama in Turkey, but caveats abound. 

It's taken a massive amount of pain in Turkish markets/currency to result in a fairly modest move for US interest rates in the bigger picture.  Moreover, US rates continue paying attention to multiple sources of inspiration.  Turkey was just one among many in that regard, and even then, only when Turkish market movement was its most extreme. 

Mortgage rates were sideways to slightly higher today, depending on the lender.  With the exception of the past two days, this leaves us at the best levels in more than 3 weeks.  In general, that move was made possible by financial drama in Turkey, but caveats abound. 

It's taken a massive amount of pain in Turkish markets/currency to result in a fairly modest move for US interest rates in the bigger picture.  Moreover, US rates continue paying attention to multiple sources of inspiration.  Turkey was just one among many in that regard, and even then, only when Turkish market movement was its most extreme. 

Mortgage rates stayed steady at the lowest levels in more than 3 weeks as financial markets are still accounting for additional risks relating to Turkey.  Simply put, Turkey is in the midst of a debt/currency/banking crisis and investors are worried about some sort of domino effect among banks that are heavily invested in Turkish banks.  All this is worth a bit of "safe-haven" demand for US Treasuries, which offer essentially risk-free returns and a liquid place to park money temporarily.

When investors buy more bonds--all other things being equal--it causes bond prices to rise.  When bond prices rise, investors are technically willing to accept lower interest payments, and it's that part of the equation that speaks to lower interest rates on US Treasuries and mortgage rates.

Mortgage rates, and indeed most interest rates, are tied to movement in the bond market.  In turn, bonds tend to benefit when big, scary stuff is shaking global economic confidence.  In today's case, the debt crisis in Turkey did just that.  Investors sought safe haven in bonds, and rates moved to the lowest levels since July 20th.

Lest you think that Turkey is a constant arrow in the quiver of potential market movers for rates, understand that things have had to get pretty bad for US markets to unequivocally respond.  This has been a festering for several days (even months, depending upon how nervous or clairvoyant you might be by nature).  Today was really the first day that where there's no doubt that Turkey is in the drivers' seat for global financial markets.

Mortgage rates finally did what they were supposed to do today.  Specifically, they fell in response to bond market improvement.  That's the way it should be, but over the past two days the typical relationship between bonds and mortgage lenders' rates has been a bit inconsistent due to the timing of market movement throughout the day.

On Tuesday, bonds weakened throughout the day.  This would normally coincide with rates moving higher, but the bond market weakness didn't happen quickly enough for most lenders to take action.  As such, they were left to make the adjustment the following morning.  Then on Wednesday, bonds improved, but not quickly enough for most lenders to bring rates lower.  That left us with a bit of an advantage to start the day today. 

Mortgage rates were modestly higher today.  Much like yesterday, there's a catch!  Yesterday's catch was that underlying bond markets had weakened enough during the day that today's rates were more likely start out higher.  That was indeed the case.  Therefore, today's "opposite" catch is that bond markets strengthened enough during the day that it implies slightly lower rates tomorrow morning, all things being equal.

In other words, bond markets didn't improve quite quickly enough for most lenders to adjust mortgage rate sheets in the middle of the day today, but they did improve enough for rates to be just a bit better if nothing changes between now and tomorrow morning.   

Mortgage rates were roughly unchanged today.  That would make this the 4th day in a row without any move higher in rates, and it would leave us at the lowest levels in roughly 2 weeks. 

But there's a catch.

The catch has to do with the way that mortgage lenders change their rate sheets based on movement in underlying bond markets.  Bond trading levels have a direct bearing on mortgage rates, but lenders can't very well change rates every few seconds when a new trade flashes in bonds.  Rather, lenders have certain thresholds of strength or weakness in mind.  As soon as bonds cross one of those thresholds, lenders will begin "repricing" for the better or worse.