Archive for November 20th, 2007

Comments Off on On Random Rate Rallies And Thin Trading

On Random Rate Rallies And Thin Trading

Mortgage rates will yo-yo through the New Year on light trading volume

Mortgage bonds staged a late-day rally yesterday, exaggerated by the holiday-shortened week and because trader participation is light.

(We’ll revisit this theme several times between now and the New Year so don’t get tired of it.)

When mortgage bonds rally, it means that demand for them is strong and that pushes mortgage rates down.

Unfortunately for people shopping for loans right now, the rally happened so quickly that lenders did not have time to adjust their mortgage rate sheets before the market’s closing.

This morning, rates are slightly higher.

The rally yesterday happened for a number of reasons including the November Homebuilders Index remaining at an all-time low. This illustrates the difficulty most developers are having in moving their inventory.

Another factor in the rally is that markets believe that the Fed is backed into a economic corner and will be forced to lower the Fed Funds Rate at its December meeting. This is happening despite (non-voting) Fed member Randall Kroszner implying in a public speech that the Fed may be entering a “Wait-and-See” mode and the further rate cuts would be imprudent.

There will be a lot of speculation about the Fed between today and December 11, the date of the next Fed meeting. Expect thin trading volume to make rates yo-yo until then.

If you see a rate and payment combination that makes financial sense today, better to lock it in then to wait for tomorrow. Rates may be on the upswing.