The catastrophic mortgage rates meltdown is almost over. The mortgage-backed securities market dropped significantly, driving retail par mortgage rates from 4.5% (8-9 days ago) to a high of 5.375% (Wednesday). While many cautioned that mortgage rates were headed higher, I separated personal opinion from my analysis and suggested that bond traders overreacted. I advised borrowers to suspend the rate lock decision until retail mortgage rates came back down to 5% or better. I expected that to happen next week.
I was wrong...
...it just happened. One of our leading banks "repriced" this afternoon and the retail par rate is now 5.0%. 4.875% has a quarter-point cost. If you have to close next week, 5.0% isn't a bad rate to grab. I think we'll see the rest of the lenders follow this big bank's lead, early next week.
What could make this mortgage rate recovery advance to 4.5% next week? Remember, mortgage bonds drive retail mortgage rates so we want to be looking for bond-friendly events. Investors look for safe havens when there is unrest in the world. US Treasuries and mortgage-backed securities are a favorite safe haven. If North Korea launches more missiles or Iran keeps taunting Israel to the point of armed conflict, investors might buy bonds which would drive down mortgage rates. Increased Fed mortgage market intervention is likely too.
What could reverse the current recovery and send mortgage rates to 5.5%? Inflation, or the fear of it, is the market enemy number one. If traders think the economic recovery is nigh, we could see rates inch up again. I think that's unlikely; the economic data we receive suggests the opposite. If traders get back on the McClintock-Gross bandwagon and think that the US Government is about to declare bankruptcy, we'll see higher mortgage rates.
My money's on a sputtering economy, a pugnacious North Korea, an annoying Iran, and a sustained mortgage rates recovery. I'm looking for rates to get back to to 4.75% by the end of next week.