What’s going on with rates?

If you’ve been keeping an eye on mortgage rates, you are aware that they have been going up quite consistently. To get broad picture, you should know that mortgage rates respond directly to the price of Mortgage Backed Securities (MBS). These are the pools of mortgages purchased by investors like Fannie Mae and Freddie Mac. Investors buy and sell them on the open market, and their price fluctuates according to that market activity.

When there is more selling of the MBS, the price goes down. When the price of the MBS goes down, rates go up because lenders will receive a lower price for each loan they sell. They raise their rates so that they can earn the same gross margin on each loan they sell.

Here is what has happened to MBS since the beginning of the year. The green bars represent days when the price increased (lower rates). The red bars, the price went down (higher rates).

There have been extended periods when rates have not made any big moves–mid-June until late-August, for example.

Beginning on September 6, we have seen a significant decline in the price of MBS. Note that there are more redbars than green ones. The size of the bar indicates how much the price changed.

The heavy selling activity beginning on September 6 caused rates to increase rapidly by about .25%. Today (10/3/18), the MBS experienced a larger sell-off, causing them to drop in price by about .50. This means that you can expect mortgage rates today and tomorrow to be about .125% higher than they were at the beginning of the week. They are about .375% higher than they were at the beginning of September.

There is no sure way to predict what interest rates will be even in the near future. Just be aware that a rate a lender may have quoted you a few days ago will not be valid today unless they locked it for you at that time. You should also know that all lenders sell their loans in the same way, so this rate increase affects all, regardless of their size. If you have a loan pending and have not locked your rate, you should do so immediately.

We hope this slightly technical explanation is helpful. As always, we are happy to explain further. Just give us a call at 925-383-2846.

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