by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Here’s how bad it gets when the mortgage-backed securities market deteriorates:
This is a chart for the last 30 days for mortgage-backed securities. When MBS prices go up, mortgage rates come down. In this case, I noticed a meteoric rise in MBS prices in the last week in April (off a low of 99.5). I called for clients to lock on May 2, 2008, when the 30 year fixed rate mortgage was at 5.875%. Today, it has improved to 5.625%.
Today, mortgage rates are over a half a point higher (in rate) :
This is panic selling that we’re seeing in the fixed-income securities market. I knew it would happen but I was early. The 30-year fixed rate mortgage was at 5.625%, nine days ago. Yesterday, it went to 6.0%. Today a 30 -year fixed rate mortgage is at 6.25%. Expect rates to be above 6.0% for the next two weeks; we should see them creep down by the end of June to the sub-6 level.
Don’t fret- they’ll be back.
Dan Green says:
Thanks for calling this out, Brian. Most people don’t realize that mortgage rates are tied to bonds and bonds trade just like stocks.
In other words, fear and greed has as much of an impact as economic fundamentals.
Yesterday, mortgage bonds crossed under the 200-day moving average and — unlike the last four times — they took a plunge instead of a bounce.
Falling bond prices mean higher rates and that’s why rates have soared this week.
May 29, 2008 — 9:29 am
Brian Brady says:
Tomorrow will be an important day for economic figures:
Previous Forecast
Apr Consumer Spending .4% .2%
Apr Personal Income .3% .2%
Apr core PCE price index .2% .1%
May Chicago PMI 48.3 49.0
University of Mich. Sentiment 59.5 60.0
All these figures measure consumer involvement in the economy. While it appears that wholesale prices may be inflationary and that business spending isn’t anemic, the strength of the US economy has always been the consumer.
If bond traders interpret the data as inflationary, mortgage rates could spike to 6.5% very quickly. If the data are mixed, expect rates to stay above 6% for a couple of weeks searching for more data. if the data are extremely weak, the MBS market will recover more quickly than I anticipate.
I think the panic selling is over and fundamentals will rule mortgage rates for June…let’s see tomorrow
May 29, 2008 — 5:45 pm
Craig Tone says:
Brian and Dan, you guys are amazing with your technical double-inverted-helix-bond-market & MBS analysis.
I’ll tell you this much. It sure beats my old managers lock/float advice for us and our clients.
My manager always said, “Rates was like a box of chocolates. You never know what you’re gonna get.”
May 29, 2008 — 6:30 pm
Wayne Long says:
I hope you are right about the rates coming back down. I had some clients who were not very happy with the move over the last week. I really didn’t know what to tell them but will point them toward your advice.
May 29, 2008 — 9:02 pm
Brian Brady says:
“I really didn’t know what to tell them but will point them toward your advice.”
Oh brother- nothing like pressure! Wayne, you would do well to only deal with loan originators who subscribe to live MBS pricing. If they’re not interested in spending $50/month, they aren’t really in the mortgage biz. Here’s a resource for them:
https://www.bloodhoundrealty.com/BloodhoundBlog/?p=2663
May 29, 2008 — 9:18 pm
Brian Brady says:
Consumer spending, income, and PCE in line with expectations; MBS market stabilized. Still favoring locking
May 30, 2008 — 5:45 am
Rhonda Porter says:
Great post Brian. I probably always lean towards locking however, it’s great to know what econcomic indicators are on the horizon. I don’t understand why consumers (especially in this day and age) would work with a LO who is does not care enough about their business to understand the mechanics of mortgage interest rates.
May 30, 2008 — 9:04 am