Mortgage markets bucked the curve last week and decided to be, well, volatile!  At least there was a change, huh?  Good Grief.

After opening with a solid performance that drove rates down, mid and late-week fears of a global recession reversed that path as Mortgage-backed securities broke back below the 200 day moving average…that is bad for rates.

This was an unexpected outcome for the week considering that:

1. The dollar advanced 5 percent, making bonds “worth more”
2. Oil dropped by 11%, helping to spur consumer spending
3. LIBOR dipped a bit, signaling a credit ‘thawing’ [does that even make sense?]

Each of the above factors would typically help generate new demand for mortgage bonds, pressuring mortgage rates lower.  But, Ta-daaaa… it didn’t happen as planned.

But, this market is anything but normal. While these are low Orlando interest rates, they should have tweaked a little lower based solely on economic data.  Well, here is the domino of what happened:

• Weak stock market showing last week
• Hedge funds were forced to liquidate their holdings and move into cash because of reserve requirements
• The rampant selling dumped an excess supply of mortgage bonds onto the market

This sequence of events completely offset the favorable bond market conditions, and caused mortgage rates to rise sharply since Wednesday.

Unsuspecting rate shoppers found this out the hard way.

This week, mortgage markets should be similarly unpredictable — there is a bevy of economic news and government news on which markets will chew, digest, and attempt to swallow.  If they can, the trick will be not to spew afterward! [Can you say that in a professional mortgage post!?] LOL

On the economic side, the two most influential data points are the Consumer Confidence survey, and Personal Consumption Expenditures. The former will be used to predict Holiday Season shopping — a weak reading should cause mortgage rates to rise — and the latter is the Federal Reserve’s measure of inflation.

If the Personal Consumption Expenditures [PCE] is low, expect calls for more ‘economic stimulus’ which would help mortgage rates to recede.

And, on the government side, the Federal Reserve will hold its scheduled two-day meeting on Tuesday and Wednesday. It’s widely expected that the Fed will lower the Fed Funds Rate by at least 0.250 percent, maybe more. [That is not good for long-term rates in most cases... call me with questions as to why.]

Often, when the Fed Funds Rate falls, mortgage rates rise in the immediate wake of the announcement. Be aware of this if you are currently floating a mortgage rate.

(Image courtesy: Wall Street Journal)