Mortgage Siesta – Stock Fiesta… Columbus’s Wild Ride…

BUY BUY BUY!!!  Doooh… did you miss it?  Throughout the feverish activity on Wall Street last week, mortgage backed securities sold off with vengeance, driving mortgage rates to their highest levels since July.  It was the 4th consecutive week in which long-term rates got more badder. [Grammar police – I know that is not correct, breathe.]

But, with the mortgage markets taking a siesta celebrating Columbus Day on Monday, stocks had a little fiesta with the largest point gain LIKE….EVER! In fact the only reason it is #5 on the chart here is because the other days were back in the 30’s where a, no joke, 8 point gain was a 15% increase! Woooaahhhhh.

The Dow’s gains are expected to push mortgage rates down today, but as of right now, that is not the case.  Mortgage Backed Securities are up about +28bps but it is quite likely that they will reverse before days end.

Expect continued volatility until investor fears are somewhat squelched.  For now, keep those seltbelts fastened and all extremities in the vehicle at all times.

This week, look for key inflation info including the Producer Price Index [PPI] on Wed and the Consumer Price Index [CPI] on Thurs.

Both measure the “cost of living” and reflect on price pressures in the economy. If costs are rising, it’s considered inflationary and that tends to edge mortgage rates higher. [Again… the economic anti-Christ, remember?]

Mortgage Market, Stock Market, Unstable… Oh my!

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After the House of Representatives defeated the ‘Emergency Economic Stabilization Bill of 2008’ affectionately known as the$700B Bailout… the stock market fell more in any single day in history.  [You probably have already recognized that the stock market does not favor uncertainty. =0)

The Dow Jones Industrial Average closed down 777.68 points, its largest one-day point loss ever.

Apparently, I am not the only one that remains bullish on America as a whole though, because only 24 hours later… we had the third largest GAIN ever.  I feel like the kid that gets a free pass to stay on the roller coaster over and over and over… only i am starting to feel like I may hurl if I don’t get off soon.  That Chili Blog…uh Dog… and the funnel cake isn’t resting well anymore! LOL

Does this mean, at the end of the day, the experts really don’t know that much  more than you and me?  Makes one think, does it not?

The stock market activity is highly relevant to mortgage rates right now because when investors flee the stock market, they’re often parking their money in bonds.

In general, that causes mortgage rates to fall.

But, as in many things, when folks regain their appetite for funnel cake [read: stocks], as they did Tuesday, they move back into the market, “un-parking” their bond money. This causes mortgage rates to rise… we have talked about this before referring to it as the “Flight to Quality”.

Both Monday’s and Tuesday’s drastic swings points to the speed at which market conditions can change, taking mortgage rates with them. At the end of the day, what does this mean for you… if you find a rate for a home purchase that you like, you may be best served by locking it in.  If  not you may find your hovering over the garbage can near the tilt-a-whirl. =0)

We can’t predict if rates will fall or rise going as we move into the future, but if the stock market is any sort of a clue lately, in whichever direction rates go, they’re going to go there like an amusement park roller-coaster.  [Personally, if I had to choose, I like the Hulk at Universal.]

WHO Benefitted from the huge market declines last week?

Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.

Not everyone got punished, however.  Two groups of people, in particular, welcomed yesterday’s losses:

1. Home buyers out shopping for a mortgage
2. Homeowners that snoozed through last week’s mortgage rate drop

See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.

This includes mortgage-backed debt, of course.

As traders poured into bonds, bond prices rose.  They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday.  A lot.

Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET.  In the Fed’s press release, among other things, markets expect Ben Bernanke & Co. to address the financial system’s stability — or lack thereof — that helped to fuel Monday’s selling action.

If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.