Mortgage Rates; where we've been and where we're headed.

Keeping these 3 simple "'key thoughts" in mind:

Mortgage rates go up when the price of mortgage backed securities (MBS) go down.
Mortgage rates go down when the price of MBS go up.

So if you've been half way paying attention you know that The Federal Reserve has been buying mortgage backed securities by the truck load since Jan. 2009.

If you half way paid attention in your high school economics class you'll remember that price is driven by supply and demand and something that changes one or the other without an equal change in the other price of that "widget", borrowing the term, but that price will go up or down accordingly.

Putting those three strands together; the Fed has "artificially" increased the demand of mortgage backed securities which has in turn pushed higher and held higher the price of those mortgage backed securities, which has kept rates at historically low for an extended period of time.

That program ends one week from yesterday and as always, the market moves before the actual end date. You may have heard the phrase "buy the rumor, sell the news." Well the news got sold in the last 2 days of trading.

here's what happened;

For the last year, various technical factors that would have normally pushed rates up, i.e. money flowing into the stock market or better than expected economic news, those things have had a dampened impact on bonds because the US Government is a HUGE buyer and those dollars in volume like that are insanely persuasive to say the least.

That support is gone, only 4 more trading days of MBS purchases by the Fed so support is gone. 2 bad treasury auctions in a row, basically saying there is not much interest in foreign investment in US debt, plus the health care impact, real or imagined it's working on the market, and money flowing to stocks, MBS started down the hill yesterday and there was no backboard to stop it. 5 rate sheets since yesterday morning and we're looking at almost a .5% jump in home mortgage interest rates in less than 48 hours. Literally we went from the lowest rates of 2010 on Tuesday to the highest rates of 2010 on Wednesday afternoon. This is the least enjoyable "I told you so" that I've ever had in my pocket. I'm having a lot of very painful conversations with a lot of the wishy washy buyers that have been "just looking, making sure it's exactly right, prices may drop a little more, rates may get a little better...." you know the ones I'm talking about. Well guess what? It's midnight Cinderella and you aren't under contract. Oops.

All that said, late today in trading, there was a huge boost to MBS after news from the Euro Zone played buzz kill to stocks and sent money back into mortgage backed. We may get a little of the pricing back tomorrow and I have literally every 30 min block filled tomorrow starting at 8am through the end of the day. I will be taking advantage of the mornings first rate sheets and locking on 45/60/90 day locks because if it does get better, it won't be much better and it has PLENTY of room to get worse.

I have my best Realtors hitting the phones this afternoon and tomorrow morning and cracking the whip on the fence sitters and hopefully we can secure 1 or 2 stragglers into the lowest rates left out there. Everyone has been so fixated on 4/30 for the tax credit but I haven't been able to think about anything but 3/31 and the MBS program winding down....turns out that the rate hikes are there, hopefully that will be a wake up call and buying at 5.25% is still better than buying at 5.825%.

It's going to be a volatile spring and summer, the recover is on the horizon but it's not here yet. Our Government is assuming an unprecedented debt load, and though minimal now, inflation has got to be the elephant in the room.

Make your calls, talk plainly with your clients, take care of as many people as you can and get the deal done and done right. You've got to prove you belong in this industry, the future of the industry is still somewhat undefined, and the only way to do that is know what you're talking about and use that knowledge to truly help your base of business. it will come back to you at some point and be that much more rewarding.

take care friends, I'm going to sleep....I have a very long day tomorrow.