Monday Market Commentary: Did Mortgage Rates Move as Much as You Thought They Did?

by Alex Stenback on March 23, 2009

FNMA 4.5% MBS, 6 month Chart: Highest point on price chart marks lowest mortgage rates.

Last Week:
Mortgage interest rates took another tumble as the Fed announced a massive expansion of it’s program to purchase mortgage-backed bonds in an effort to drive mortgage rates lower.

After the Fed announcement Wednesday, rates immediately fell almost .5%, as the 30 year mortgage briefly touched 4.375%.  Rates have leaked higher in the days hence but remain in the mid to high 4% range – roughly .125-.25% better than before the announcement.

While this was good news for mortgage seekers, the drop in rates was not as large as the level of media coverage might suggest and it pales compared to the move after the Fed’s Nov 2008 announcement.  See graphic above.

This Week:
Market participants will continue to position themselves for the new reality of massive interventions by the Fed in mortgage capital markets – this may spark some unusual moves. 

These low rates will also spur another refinancing boomlet, which will add new supply of mortgage bonds.  This additional supply will coincide rather well with the normal, seasonal spike in new mortgage issuance that accompanies the spring selling season for real estate.  These two factors will, among others, make any additional (significant) drop in mortgage rates awfully tough.  As the market works to absorb this supply, prices may fall, and rates may rise a little.

In other words, this new move by the Fed is as much about keeping rates low (around 5%) as it as moving them lower to 4.5% or the pipe-dream that 4% mortgage rates represent.  Anyone holding out for dramatically lower rates might be waiting a long time.

The economic calendar will be active this week.  Recall that what is bad for the economy is good for rates as you ponder the impact of Existing and New Home Sales (Mon, Wed), Durable Goods Orders (Wed), and GDP (Thurs), and the Personal Consumption Expenditures Report (Friday)
This Week’s Economic Calendar [Barron's]
Watching Rates? If you are following mortgage rates, don’t forget to subscribe to my RateWatch Twitter feed.  It’s posted in real time in the center column, or you can grab the feed directly and have updates piped to your phone, RSS reader, IM, or Twitter account.

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