The Fed cut rates this week by .50% due to the concerns that the Carona Virus will damage the current vibrant economy. Contrary to the media hype, historically mortgage rates can actually rise and they did the day after the rate cut.
That’s because mortgage rates are not directly affected by a fed rate cut.
Rather mortgage rates are directly affected by the prices of mortgage bonds, known as the Mortgage Backed Securities Market. Specifically the Fannie mae and Freddie mac bonds. Not the 10 year treasury, as many would have you believe. The 10 year Treasury affects the commercial mortgage backed securities market used for commercial real estate loans, not home loans. Glad I could clear that up.
Mortgage rates dropped because of the stock market turmoil. When the stock market drops, investors move their stock investments into the bond market this is known as “Flight to Quality”.
Flight to quality is the action of investors moving their capital away from riskier investments to safer ones. Uncertainty in the financial or international markets usually causes this herd-like shift.
Therefore the Price of the bond rises and inversely the rates tied to those bonds drops.
Below is a chart of the Mortgage backed Securities Market showing the rise in bond prices from January 16th to march 6th. An increase of 133 basis points, which results in approximately 50% reduction in mortgage rates.
Once the fears and media hype about the Carona virus subsides, as did with the Swine Flu H1N1 Pandemic in 2009, the financial markets should recover. Especially with the current strong economy and its anybody’s guess when that will happen.
So I don’t recommend trying to time the bottom on mortgage rates.
Rates are historically very low. many today were not around in 1992, when mortgage rates first fell from their highs of 17% to below 10%. Yes that’s true, look it up. Also rates tend to move up faster than they go down, as banks are not eager to pass the saving on to their customers.
My advice; Connect with a experienced Mortgage Professional, typically found not in the banks, but in the mortgage Broker/Lender community.
These professionals specialize only in lending and have access to many different loan programs. I’m going to toot my own horn here.
I have been in the Lending profession since 1991 and seen it all. Many of clients have done multiple loans with me over the years. Take a moment to see what my clients have to say.
Contact me for a Complimentary Consultation and see how much you can save. I’m an analyst, not a salesman. If I can’t save you money on your refinance or home loan purchase no harm, no foul.
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John Sauro
Sources: Written by John Sauro North Atlantic Mortgage, Chart MBS Pro.
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