Mortgage rates held their ground fairly well today, despite the fact that underlying bond markets were weaker.  Bond market weakness is associated with higher interest rates, all other things being equal.  To understand this, consider that a bond is essentially a loan.  An investor who buys a bond is buying the right to collect interest payments on a loan.  That investor is effectively "the lender."  Ideally, those investors would compete with one another for the right to collect interest on loans.  If bonds are "weaker," it means those investors don't see as much value in buying those loans.  The price they pay to obtain the loan goes down (aka "weakness").  In turn, the loan's rate of return needs to be bumped up in order to attract investors.  And "bumping up the rate of return on a loan" is tantamount to "higher rates."

There is a degree of separation between the market price of loans and the rates actually being set by mortgage lenders.  Timing can be one of the most common reasons for discrepancies like the one we're seeing today.  In the current case, Friday saw lenders set their rates in the morning only for the bond market to improve throughout the day.  When bonds improve, lenders can eventually offer lower rates, but it doesn't make sense for mortgage lenders to change rates more than necessary.  If bonds only improve moderately, they may just wait for the following business day to adjust rates lower.  If, however, bond markets move weaker (as they did today), we're often left with unchanged rates as today's weakness cancelled out Friday's mid-day strength.

All of the nuts and bolts above notwithstanding, the average lender remains in line with the lowest rates in a year.  Only January 31st saw anything better, and it wasn't much better!  While that's exciting news for anyone with a vested interest in lower rates, the outlook isn't without its risks.  Several lingering uncertainties could be cleared up in the coming days and weeks (trade deal with China, government shutdown, more economic data after the shutdown-related hiatus).  If that happens in such a way as to benefit stocks more than bonds, there is plenty of room for rates to move higher.  In other words, current rate levels connote a bit of an opportunity to lock in the lowest rates in a long time.


MND's Daily Rate Survey
52 Week
ProductTodayYesterdayChangeLowHigh
30 Yr FRM4.44%4.44%--4.43%5.05%
15 Yr FRM4.05%4.05%--3.86%4.53%
FHA 30 Year Fixed4.13%4.13%--4.12%4.62%
Jumbo 30 Year Fixed4.28%4.28%--4.28%4.81%
5/1 Yr ARM4.37%4.38%-0.013.44%4.75%