Rates Improving On Home Loans End of March

Yesterday was a critical day for interest rates in the secondary mortgage market considering it was the first day of the last week that the Fed would be purchasing mortgage backed securities.

Last week we ended on a negative note with the market down 3 ticks, and I mentioned that Monday of this week would be a critical day in determining which way our market would turn. Yesterday we finished up on the day 6 ticks, and today we are off to a good start up 2 ticks waiting on international news about Greece and Japan to guide the remaining hours of the trading day. This is expected at 10am Pacific Standard.

Regardless, the gains tell us something about our market and economy in a whole. Namely investors (which are the lifeblood of our economy) are skeptical about the direction of our economy. Point in fact when our economy and short terms markets are performing poorly, mortgage backed securities typically post gains and improve lowering rates available to consumers. On the other hand when our economy is flourishing and short term markets are active and healthy, long term markets like the MBS suffer. After all why would someone invest long term when they can invest short term and make as much if not more in return? The answer is simple, and is why the health of our economy dictates interest rates for home loans and rates suffer in strong economies.

Currently the sentiment seems clear, investors are still skeptical about our economic recovery and are opting for long term investment vehicles. This is important to recognize because with the Fed leaving in the next few days, we should be gearing up for a firesale. Instead we have seen steady, albeit small daily gains. There is no doubt about it, it is too early to call whether or not rates will increase substantially in the next couple of weeks. I still believe everyone in the market now should plan for the worst and lock. Whatever your decision, it is important to recognize how important the market is in the upcoming days, and should be watched carefully.