Why the day before Labor Day weekend is tough on home affordability

Volume figures to be light on Wall Street today as traders get a head start on Labor Day weekend. It could make shopping for a mortgage a bona fide challenge. Expect rate volatility this morning and afternoon and, therefore, by extension, expect wild swings in the Home Affordability Index. As mortgage rates rise and fall, monthly mortgage payments do, too. The relationship between "vacation days" and mortgage rate volatility stems from 2 facts:

1. Conforming mortgage rates are based on the price of mortgage backed bonds, and
2. Mortgage-backed bonds trade just like stocks. You can't make a deal without matching a buyer and a seller at a specific price.

With so many traders on vacation today, therefore, there are fewer opportunities to match buyers and sellers. As a result, expect mortgage bond prices to rise and fall with more velocity than on a "normal" day especially.....

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