After a couple of brutal weeks, all signs now point to mortgage backed securities (MBS) rallying and mortgage rates heading lower. It means that many homeowners looking to refinance and those looking to purchase a new home will benefit from lower mortgage payments.
Changes in mortgage interest rates are attributed to the change in price of MBS. There are many factors that determine if the price falls or rises for MBS. If MBS rise, then mortgage interest rates go down and vice versa. What has happened in the past few weeks is an influx supply of US Treasury bonds into the market. Due to the high spending of the Obama administration, the government must be able to raise money by issuing debt. Around May 29th, traders began to price in the upcoming Treasury auction, which was very large. Traders realize that demand for MBS would decrease as there will be a huge supply of treasury bonds. Because of high Treasury bond supply, their yields (the return on the bond) go up. Treasury bonds become more attractive than MBS so the price of MBS goes down making mortgage interest rates go up. Not only is there a huge supply of Treasury bonds, but due to the refi boom earlier this year, there is also a huge supply of MBS which has recently hit the market. More supply means lower prices thus higher mortgage interest rates.
However, mortgage bonds should be rebounding especially following the purchase of $20.29B in mortgage backed securities from the New York Federal Reserve. Predictions about lower mortgage rates come from thorough analysis of the Fannie Mae 30 year 4.5% MBS, which is currently trading at $99.94. The MBS has crossed over its support level of $99.22, which is the 200 day moving average and is approaching its resistance level of $100.44, which is the 50 day moving average.
Barring any drastic changes in the market, we should see mortgage rates declining in the near future. Talking to mortgage professionals, they say mortgage interest rates have been very volatile since last month. Before the drastic decline in MBS, mortgage interest rates were hovering around 4.75%. However, mortgage rates rose to as high as 5.625%. As of late, the rates have gone down to 5.125%. There seems to be a rally on the way for MBS providing an ample time for current and potential homeowners to lock in a good rate.
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Mortgage Rates Lower This Week
Posted by Leo on 6/26/09 • Categorized as News and Commentary
After a couple of brutal weeks, all signs now point to mortgage backed securities (MBS) rallying and mortgage rates heading lower. It means that many homeowners looking to refinance and those looking to purchase a new home will benefit from lower mortgage payments.
Changes in mortgage interest rates are attributed to the change in price of MBS. There are many factors that determine if the price falls or rises for MBS. If MBS rise, then mortgage interest rates go down and vice versa. What has happened in the past few weeks is an influx supply of US Treasury bonds into the market. Due to the high spending of the Obama administration, the government must be able to raise money by issuing debt. Around May 29th, traders began to price in the upcoming Treasury auction, which was very large. Traders realize that demand for MBS would decrease as there will be a huge supply of treasury bonds. Because of high Treasury bond supply, their yields (the return on the bond) go up. Treasury bonds become more attractive than MBS so the price of MBS goes down making mortgage interest rates go up. Not only is there a huge supply of Treasury bonds, but due to the refi boom earlier this year, there is also a huge supply of MBS which has recently hit the market. More supply means lower prices thus higher mortgage interest rates.
However, mortgage bonds should be rebounding especially following the purchase of $20.29B in mortgage backed securities from the New York Federal Reserve. Predictions about lower mortgage rates come from thorough analysis of the Fannie Mae 30 year 4.5% MBS, which is currently trading at $99.94. The MBS has crossed over its support level of $99.22, which is the 200 day moving average and is approaching its resistance level of $100.44, which is the 50 day moving average.
Barring any drastic changes in the market, we should see mortgage rates declining in the near future. Talking to mortgage professionals, they say mortgage interest rates have been very volatile since last month. Before the drastic decline in MBS, mortgage interest rates were hovering around 4.75%. However, mortgage rates rose to as high as 5.625%. As of late, the rates have gone down to 5.125%. There seems to be a rally on the way for MBS providing an ample time for current and potential homeowners to lock in a good rate.