Mortgage Rates Turn Positive

Mortgage rates turned into a positive direction as rates are now getting back to what they were a few weeks ago.  The stock market was hit hard today and in turn, money flowed into treasuries and in turn from that Mortgage Backed Securities (MBS) prices gained nicely reversing the negative trend we had seen until recently. When demand for MBS increases, prices rise and rates fall, as was the case today.  The most prevalently quoted conforming 30yr Fixed rate for the best-qualified borrowers back down to 4.375% after a recent stint at 4.5%.

Listening to the numerous guests on CNBC this afternoon there seems to be confusion as to why the stocks tumbled so hard.  The transportation index was really hammered, as this index is in some minds a leader in direction for equity markets.

It is a rarity that anyone that works for Wall Street firms ever has a negative outlook for the economy and the stock market,  so you are not likely to hear anyone that has a negative outlook for stocks until it is too late. That said, recent trading in stocks has been soft after the huge rally last year. Big investors using the treasury market to hedge against a pullback in stocks. Also a little safe haven moves today with the Crimea vote on Sunday.  Do not underestimate the China effect - the economy is slowing and there are concerns at the moment that its banking sector may suffer more defaults.  

When geopolitical risk affects markets, the typical result is for safer, lower-risk assets to see increased demand. US Treasuries are a prime example of such an asset, and the MBS that most directly affect mortgage rates usually move in the same direction, though at varying speeds.

In summary, floating has been very good to anyone who chose that route this week, but we have seen this before. The Russian and Ukraine drama saw us at, or even below these levels before only to see them disappear overnight and rates rise. Some may consider seeing if rates will go down even further.  What have I said before, “Pigs Get Fat and Hogs Get Slaughtered?”   I would strongly consider capturing the gains of this week, but if you decide to float, I would do it with extreme caution.