Mortgage Rates Slightly Higher - No Liquidity in the Market

Mortgage Rates continued slightly higher into 3-Month Highs today.  Movement in the mortgage market depends on many factors, but one of the most important for any market is liquidity.  This is most simply thought of as the presence of buyers and sellers interested in trading at similar prices.  The more of those buyers and sellers, and the more they see eye to eye on what prices should be, the more 'liquidity.' 

With that in mind, there is no liquidity during these holiday weeks.  That's been especially true of this week where Christmas fell on a Wednesday.  That made today a sort of unofficial holiday and the effect on market conditions isn't likely to change tomorrow. Things might be just slightly more  busy if tomorrow was the last chance to trade in 2013, but there will be 2 days for that next week.

The point to all this is that the lack of participation indirectly hurts rates.  It's not that trading levels in bond markets are much worse today.  In fact, the mortgage-backed-securities that most directly influence rates (MBS) are slightly improved.  But when lenders can't be assured of finding willing buyers for the loans they're originating, they're forced to raise margins to account for that risk, thus pushing rates higher.

This isn't likely to change until at least next week and more certainly, the week after that.  Between now and then, there will be a certain randomness to market movements that's not often seen outside the holidays and an ongoing upward pressure on rates, albeit small in the big picture.

Rates only rose the equivalent of roughly 0.02 to 0.03% today, but most of that change would be seen in the form of higher prices for Tuesday's rate quotes.  That means the most prevalently quoted rate for ideal, conforming 30yr Fixed loans is still 4.625% with  4.75% as close as it's been since early September.

In essence, a flat day today as borrowers, loan officers, and bond investors ponder their Christmas gifts and plans for 2014. Not surprising that new loan origination is at a multi-year low. Among the less than exciting news of the day, the 10 year treasury yield reached 3.0%, the highest since early September. Hopefully it recovers once December employment and spending data hits.

Do not forget to contact us if you need any assistance with your financing at www.CallTheMoneyMan.com.