Like everything else on Wall Street, mortgage markets are based on supply and demand. When demand outweighs supply, mortgage rates fall.
So, Tuesday, when the government unexpectedly announced a $500 billion budget for buying mortgage debt from Fannie Mae and Freddie Mac, the demand side of the mortgage market ballooned.
The surprise demand helped push mortgage rates to their lowest levels since January 22, 2008. 30-year fixed mortgage rates were down by as much as three-quarters of a percent Tuesday before retreating higher.
Not coincidentally, January 22, 2008, was the date of another unexpected government intervention -- a surprise 0.750 percent Fed Funds Rate cut that was meant to spur the economy forward.
Interventions like these are a big reason why predicting mortgage rates is tough business -- just when you discover the market's balance point, an outside force shifts that balance, creating tremendous amounts of uncertainty about the future.
Uncertainty on Wall Street is typically bad for mortgage rate shoppers because it leads to high levels of volatility. Look at the trading pattern from Market Open to Market Close yesterday:
- 8:30 AM ET: Markets open with rates falling on the news
- 10:00 AM ET : Rates fall more on momentum trading
- 12:00 PM ET : Rates level at their lowest levels of the day
- 2:00 PM ET : Rates rise as profit-taking begins
- 3:30 PM ET : Rates rise more on momentum trading
- 4:00 PM ET : Markets close with rates down by half
Again, not coincidentally, this is the exact trading pattern from January 22, 2008. On that day, rates were at their lowest about 3 hours into trading, and then consistently rose all the way into Market Close -- just like we saw Tuesday.
Unfortunately, in the 30 days that followed January 22, mortgage rates rose from a 3-year low to a 3-year high. And, it's not to say that the same thing will happen from now through December 25, but trading patterns have a tendency to repeat themselves over time.
Mortgage markets seek balance and when there's a dramatic shift, chaos can creates opportunity. Tuesday's $500 billion pledge added new demand and shocked the mortgage market system. Before long, it recovered to find balance.
As of today, mortgage rates are still hovering near their 3-year lows so if you haven't spoken to your loan officer about a refinance, consider calling today.
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