You may have seen recently (last month) that rates were low as all get out. Then you called your lender to talk about buying a home, or refinancing your home. Well to your surprise those rates are now higher. Why is this? How did they go up about .375% in 30 days? It is kind of like ping pong, and here is why.
The influencers to mortgage rates are not what you may think. The worst thing you can do is watch the nightly news and think those are interest rates. By the time those are posted, the media releases rates that are about a week old. So what drives rates? The 10 Year, like a journalist may write? That is like saying I am make a cake with concrete mix. Not at all one in the same, concrete mix is not flour.
Mortgage rates are driven by mortgage back securities (MBS). These trade daily like stocks, just on the bond market. You know bonds trade daily, and a mortgage is a bond (long-term debt). So now you know , it is an actual bond, the 30 year mortgage backed security. If you tracked the 10 Year next to the 30 Year MBS, you would quickly realize concrete is not flour.
Why are mortgage rate like ping pong, right now? Here we are smack in the middle of world and financial unrest. We are heading towards the main buying season. Why does that matter? Well after watching mortgage bonds daily for the last 14 years, it historically is when rates rise. I said in November that mortgage rates would go up in mid-February, and lookie-lookie at what happened.
So right now the “net” if you will is the 100 day moving average (DMA) of the trading history. Ray, why are you geeking out on me, you say? Because the “net” is holding serve. Right now mortgage bonds are below the 100 DMA after holding “serve” for quite some time. Think of it this way. If you do 1,000 push ups, how easy will it be to do a pull up? The 100 DMA has created a strong layer of resistance for the MBS trading pattern. So as a result bonds are weaker (meaning rates are higher). The mortgage rates may bounce around on one side or another of that “net” right now, but don’t bank on the rates getting better soon. The paddles are smacking the MBS around on the backside like a ping pong ball, and the ball is losing.
Will rates go down? With a global economy, world unrest, and tension between congress and the President, sure anything can happen. But if I had to make a wager, I would say safe money is on the 50 lb gorilla who has the bigger ping pong paddle. So I would say don’t bank on lower mortgage rates. Chew on this~
Ray Williams (@MtgMaestro)