Mtg Rates Feed off Stock Market Famine – ARCHIVE

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Market Update below pertains only to August 24, 2015   

They tell us not to look at our investments daily.  This morning was one of those days where blissfully ignoring them may have saved some serious heartburn.  After all, what goes down must come up – or something along those lines ;).  As you heard stocks took a boot to the chin dropping over 1,000 points in the first 6 minutes of the day.  By the end of the day the Dow closed down 588 after bargain hunters starting buying up now discounted stocks.

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 What Does This/Did This Mean for Mortgage Rates?

Typically a herd of sellers in the stock market becomes a herd of buyers in the bond market.  Buying bonds increases their price which pushes mortgage rates down.  That was precisely how today started for us mortgage types.  Today we started with rates down sharply (as much as .25% from Friday for a 30 year fixed mortgage).  That deep drop was quickly somewhat muted as the stock market partially recovered.  Think of it this way:

  1. putting your money in stocks is risky but more rewarding
  2. putting your money in bonds is safe but less rewarding

Think of investors having 2 choices to invest money.  Logically, they often stuff it into comforting guaranteed low risk bonds when the risk reward volatile stock market gets shaky.  Mortgage rates benefit when this “flight to quality or safety (aka bonds)” occurs as higher bond prices mean lower mortgage rates.  Another way a stating this is mortgage rates tend to benefit when stocks are not doing well.

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At the end of the day, mortgage rates are still better today than Friday based on the fact that the bond market did keep some of what it gained today.  More importantly, if these rate levels can be maintained the stage may be set from a technical standpoint for a mortgage rate rally.  Basically what happens is what was a floor for rates (meaning it did not allow rates to drop further) becomes a ceiling (meaning it keeps them from going up).   We will need to wait and see how things shake out the rest of this week – but say tuned J.

By Jeremy House

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