Mortgage Rates Snap 7-Day Streak; More Volatility Ahead
December 2, 2014
Mortgage rates finally ended a 7-day winning streak today, moving higher for the first time since November 19th. The losses were not insignificant either, erasing the past 4 days of steady improvements. All that having been said, the bottom line could still be much worse. Some lenders are still competitively-priced at 3.875%, meaning a top tier borrower and scenario would be quoted 3.875% for a conforming 30yr fixed loan. Others, however, moved up to 4.0% today after just having made it down to 3.875% yesterday. The average lender is now somewhere in between.
As for the underlying causes pushing rates higher, there are no simple, satisfying explanations today. There aren't any surprisingly strong economic reports pushing stocks and bond yields higher. The biggest considerations are those that aren't readily observed or reported. They include things like corporate bond offerings and other tactical trading designed to bolster year-end balance sheets.
It's not as if lenders see these things happening and say "oh, I guess we better raise rates!" Rather, in the process of that "balance sheet bolstering," companies and traders end up taking a short position in Treasuries, which has the same effect as "selling." When there is more interest in selling vs buying, prices fall. And when prices of Treasuries fall, yields (or RATES) move higher. While mortgage rates are based on Mortgage-Backed Securities (MBS) as opposed to Treasury yields, MBS are still compelled to follow the broader bond market for the most part.
All that to say, mortgage rates are taking a hit due to fairly swift reversal in the broader bond market. Rates had been doing well into the end of November, but December brought new trading needs/goals into the fold, and those have been largely negative so far. Rates managed to hold steady yesterday because lenders were still getting caught up with MBS improvements from late November.
So will the pain continue? It's an equal possibility for now, and an early December reversal was always a risk following Thanksgiving week (which tends to stick out like a sore thumb of volatility for better or worse, only to move back in the other direction in the following week). The next three days bring events that are much more significant than anything we've seen so far this week. If they're friendly enough, they could counteract some of the underlying weakness we're seeing here, but if they're unfriendly, the combined effect could be ugly. It doesn't make much sense to bet against the prevailing momentum until it's clearly run its course. That could mean that you'd lock and then run the risk of seeing rates improve afterward. But that seems like the lesser of two evils when compared to "not locking" only to see a more substantial rise in rates.
SOURCE: MORTGAGE NEWS DAILY
As for the underlying causes pushing rates higher, there are no simple, satisfying explanations today. There aren't any surprisingly strong economic reports pushing stocks and bond yields higher. The biggest considerations are those that aren't readily observed or reported. They include things like corporate bond offerings and other tactical trading designed to bolster year-end balance sheets.
It's not as if lenders see these things happening and say "oh, I guess we better raise rates!" Rather, in the process of that "balance sheet bolstering," companies and traders end up taking a short position in Treasuries, which has the same effect as "selling." When there is more interest in selling vs buying, prices fall. And when prices of Treasuries fall, yields (or RATES) move higher. While mortgage rates are based on Mortgage-Backed Securities (MBS) as opposed to Treasury yields, MBS are still compelled to follow the broader bond market for the most part.
All that to say, mortgage rates are taking a hit due to fairly swift reversal in the broader bond market. Rates had been doing well into the end of November, but December brought new trading needs/goals into the fold, and those have been largely negative so far. Rates managed to hold steady yesterday because lenders were still getting caught up with MBS improvements from late November.
So will the pain continue? It's an equal possibility for now, and an early December reversal was always a risk following Thanksgiving week (which tends to stick out like a sore thumb of volatility for better or worse, only to move back in the other direction in the following week). The next three days bring events that are much more significant than anything we've seen so far this week. If they're friendly enough, they could counteract some of the underlying weakness we're seeing here, but if they're unfriendly, the combined effect could be ugly. It doesn't make much sense to bet against the prevailing momentum until it's clearly run its course. That could mean that you'd lock and then run the risk of seeing rates improve afterward. But that seems like the lesser of two evils when compared to "not locking" only to see a more substantial rise in rates.
SOURCE: MORTGAGE NEWS DAILY
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