Tumultuous and volatile have been two words that we’ve used a lot to describe the mortgage business and interest rate environment this year, but this past week was fairly calm in comparison, with interest rates varying only by about .25% during the week. Interest rates are determined by the pricing of mortgage bonds (also called mortgage backed securities) so we pay close attention to the shifting prices throughout the week and the economic reports that can have a large effect on those prices.
Monday brought good news to the stock market and the financial sector with the report that troubled Bear Stearns would be getting $10 instead of the measly $2 per share reported earlier and mortgage bond prices went down on the news. Existing Home Sales were reported at a better than expected pace which was good news for the housing industry. Bond prices ended the week on an upturn partially fueled by the favorable moderation in the inflation figures from Friday’s Core Personal Consumption Expenditure Index for February. This is the Fed’s favorite measure of inflation and Mr. Bernanke and his team are watching very closely for any signs of inflation which would be expected after the 6 cuts to the Fed Funds Rate in the current rate cut cycle that began on September 18th.
Keep in mind that when mortgage bond prices go up, interest rates go down and vice versa. It’s important to be dealing with a mortgage professional who is in tune with the bond market so that your interest rate can be locked at the optimal moment.
If you don’t understand why the rate cuts the Fed is making aren’t reducing mortgage interest rates, stay tuned for next week’s report.
