Mortgage Rates Move Back toward Long-Term Lows Mortgage rates were modestly lower today, and are now getting back in line with levels not seen in more than 20 months. Only the last 3 days of last week were any better. That said, the amount of improvement in the mortgage market pales in comparison to other parts of the bond market that are normally much more correlated. For instance, 10yr Treasury yields moved 0.08% lower today. Average mortgage rates barely managed half that. In general, the broader bond market is insanely volatile and insanely illiquid right now. lliquidity refers not to an absence of volume, but to small numbers of buyers and sellers interested in transacting at any given price. The buying and selling of bonds (which includes the mortgage-backed securities) moves rates higher and lower. The more buyers and sellers there are, the easier it is for markets to hone in on a price and manage volatility. The secondary mortgage market thrives on liquidity and price stability. The more volatile bond markets are, and the harder it is to find a buyer or seller, the less valuable mortgage-backed-securities become relative to other, less tempermental investments. The bottom line here is that with the massive volatility brought about by the European Central Banks quantitative easing announcement, mortgages are suffering relative to Treasuries. Thats not really a bad thing when rates are moving lower. It just means theyre moving lower more slowly than their peers. In fact, theres a bright side as well. To whatever extent volatility can subside, mortgage rates have room to improve even if broader bond markets are staying flat. Before you get too excited though, it may well be too much to ask for markets to calm down quickly enough to notice that sort of advantage in mortgage rates. In fact, volatility is a safer bet for now. And as for now, that seems to be resulting in fairly tepid gains when rates are moving lower, but is offset by similarly tame weakness when rates are moving higher. If youre aggressively interested in holding out for lower rates, theres some room for error here, assuming you dont mind setting limits and locking at a loss if markets move against you. For less aggressive folks, or if you cant afford to lose any ground from todays quote, its never a bad idea to lock when rates are this close to 20-month lows. The Mortgage News Daily
Posted on: Fri, 23 Jan 2015 23:20:39 +0000