Archive for the ‘Mortgage Rate Watch’ Category

Mortgage rates failed to extend yesterday's modest improvement, moving modestly higher by the end of the day.  This takes the average lender very close to the long-term highs seen on October 5th.  Indeed, prospective borrowers shouldn't be surprised to see the highest rates since early 2011. 

In and of itself, today wasn't too dramatic.  We were already fairly close to these highs yesterday and, in general, have been holding in a fairly sideways pattern nearby for most of the month.  As has been the case for more than 2 years, we are in a rising rate environment, and there's no compelling reason for an immediate change.  That said, the higher rates go, the harder it will be for them to continue moving higher. 

Mortgage rates recovered most of yesterday's losses today, following turmoil in European financial markets.  What does Europe have to do with rates in the US?  A lot, actually.  In fact, Europe deserves credit for most of the glacial move toward lower rates seen from early 2014 through mid-2016, and was a key ingredient of the low rate environment in 2011-2012. 

More recently, Europe has been heading in a more American direction when it comes to monetary policy, and that's resulted in upward pressure on rates.  Most recently, investors are having some doubts about Italy's willingness to play nice with EU rules.  When that happens, investors seek safety in the core of the European bond market.  In other words, they buy bonds from Germany and other safe-haven countries.  While US bonds aren't high on that list, they still experience some of the benefits, and higher demand for bonds equates to lower rates.

Mortgage rates moved higher at a quicker pace today, following the release of the Minutes from the most recent Fed meeting.  But correlation isn't necessarily causality in this case.

The Minutes provide a more detailed account of the Fed meeting that resulted in September's rate hike.  That rate hike was foregone conclusion and the Fed has been a relative open book in the intervening 3 weeks.  In other words, there wasn't bound to be much by way of surprises.  Even so, investors are always looking for clues in this more robust snapshot of the Fed's decision-making process.  As such, it has the potential to cause some market volatility.

Mortgage rates didn't move much today.  Some lenders were perfectly unchanged, but the average lender was just slightly higher.  That's at odds with underlying bond market movement (which directly impacts rates)--at least at first glance.  Specifically, the bonds underlying mortgages were slightly stronger today.  That would imply slightly lower mortgage rates.  So why did rates rise?

As is often the case, today's seemingly paradoxical movement is due to timing.  Bonds were weakening ever-so-slightly yesterday--something that's consistent with lenders raising rates.  But the bond market didn't weaken enough for lenders to make those changes in the middle of the business day. 

Mortgage rates didn't move much today.  Some lenders were perfectly unchanged, but the average lender was just slightly higher.  That's at odds with underlying bond market movement (which directly impacts rates)--at least at first glance.  Specifically, the bonds underlying mortgages were slightly stronger today.  That would imply slightly lower mortgage rates.  So why did rates rise?

As is often the case, today's seemingly paradoxical movement is due to timing.  Bonds were weakening ever-so-slightly yesterday--something that's consistent with lenders raising rates.  But the bond market didn't weaken enough for lenders to make those changes in the middle of the business day. 

Mortgage rates were sideways to slightly higher today, prolonging a 3-day trend of exceptionally light volatility.  The 5 days before that (beginning on Wednesday, October 3rd) were completely different, with a huge move higher at first followed by a moderate recovery at the beginning of last week. That recovery largely followed the stock market weakness.

Stocks and rates don't always move in the same direction, but when stocks fall as quickly as they did last week, rates usually benefit.  After such moves level-off, rates tend to wait for stocks to see if there will be an aftershock or a big bounce.  For now, it doesn't look like stocks have made up their mind yet, as they too have continued in a largely sideways pattern during the last 3 trading sessions.

Mortgage rates held relatively steady today, finally leveling off after two solid days of improvement driven by the week's big stock market sell-off.  Stocks and rates don't always move in the same direction at the same time, but when stocks make a big move lower, rates tend to benefit.  This week's move lower in stocks was the 3rd largest since the financial crisis.  In that light, we only saw a mere token of improvement for mortgage rates, but we'll take what we can get considering it was the only meaningful drop in rates since August 10th.

Mortgage rates fell today as the stock market sell-off remained in focus.  Stocks and rates certainly don't have a linear and predictable relationship, but when stocks move lower as quickly as they have over the past 2 days, rates tend to see at least some benefit.  Even though yesterday's stock sell-off was much worse, today was a better day for rates due to timing.  Simply put, the mortgage market didn't have quite enough time to adjust to the move in stocks before the close of business.  Lenders who did change rates yesterday were somewhat conservative with those changes in the event stocks bounced back in a major way.  When stocks failed to improve overnight, mortgage lenders passed along more of the improvements seen in the underlying bond market.

Mortgage rates are based on mortgage-backed securities (MBS), which are essentially bonds.  Conventional wisdom holds that stocks and bonds supplement one another, and that as "money moves in" to one side of the market, it will move out of the other.  Conventional wisdom is super duper wrong!

If conventional wisdom held true today, we would have seen a very big move lower in rates.  The massive sell-off in stocks means there was a huge amount of cash looking for a new home.  While it's true that some of this cash did find its way into the bond market, the amount doesn't even begin to compare.  By the end of the day, the bonds most closely tied to mortgage rates had barely reentered positive territory. 

Mortgage rates recovered a small portion of their recent losses today, but the average loan applicant might not even notice.  The 2 key ingredients of a mortgage rate (for the purposes of tracking their movement) are the rate itself (the "note rate") and the upfront costs tied to that rate.  The note rate and associated costs make up what many refer to as an "effective rate" (a number, expressed in interest rate form, that adjusts the actual note rate based on the implications of upfront cost changes.