There is an old saying that the market (in this case the bond market) makes a fool of the largest number of people. That came true again yesterday in mortgage bond trading. Thursday morning, rates on a 30 year fixed rate loan were at 5.25%. Today they are for the most part around 5.75%. This made fools of everyone who “knew” interest rates on mortgages were going to fall to 4.5%.
So what happened and is it permanent? The answer is that mortgage bonds got caught in a vortex. First, they have been on a huge run since around Thanksgiving and since rates never go up or down in a straight line a little sell off is not surprising. Additionally, the stimulus package that the new administration was touting before the inauguration was short on details but long on commitments to infrastructure and direct stimulation of the economy. Now the package is more expensive and appears to have more pork (read: non stimulus spending) in it. This combination is inflationary and bonds hate inflation. The final straw is that mortgage lenders are overrun with business. I receive emails from underwriters with questions at all hours of the day, midnight, 5AM, 8PM. They are working around the clock and not hiring additional people to help since they laid them all off a few months ago. This is causing lenders to raise rates to catch up on workflow. The combination has turned the falling rate momentum into rising momentum.
So will it last? The short answer is I don’t think so. Rising rates are associated with rising inflation, which in the big picture, is associated with an expanding economy. The 4th quarter 2008 GDP number was just reported at -3.8%. There does not seem to be an improving economy on the horizon. Thousands of layoffs were announced and executed this week. Do you know anyone, aside from bankruptcy attorneys, doing well today?
The best advice now is to find a target and stick to it. Your mortgage professional can run the numbers for you and show you where a really good rate makes sense for you. Then get your application in and wait for the market to return. Once, that rate hits LOCK IT IN. Don’t let the greed to get a great rate get in the way of getting a good rate that can save you tens of thousands of dollars over the life of your mortgage.
