Memorial Day Messes With Mortgage Rates!

Mortgage and Lending with Platinum Funding Group, Inc.NMLS-243033 NMLS 4195

Mortgage rates across the state are near year-to-date lows, but locking them in this week may be difficult. As Memorial Day nears, and Wall Streeters get a head-start on the long weekends, trade volume in the mortgage bond markets will dip.

When bond volume drops, mortgage rates get jumpy. It’s a relationship based more on scarcity than actual market fundamentals.

It works like this:

  1. Conforming and FHA mortgage rates are based on the “market price” of a mortgage-backed bond
  2. Mortgage-backed bonds can’t be bought or sold without a buyer and a seller at a specific price

As Friday gets closer this week, and more and more Wall Street traders will leave for their “extended” 3-day weekend, and bond markets will be left with fewer and fewer participants. This will create a market situation in which it’s harder to match a buyer and seller at any given bond price, resulting in larger mortgage rate shifts than usual.

These jumps in rates are exaggerated during periods of economic uncertainty like these. What’s more, there’s a lot of economically-important data due for release this week. That, too, can put markets in hysterics.

If this were a “normal” week, mortgage rates would be volatile. The coming of Memorial Day is just adding to the mix.

Comments (3)

Chandler Real Estate Liz Harris, MBA
Liz Harris Realty - Chandler, AZ

Good info... I think most of us just usually just follow the rates, not the bond market... but it is good to be educated on both!

May 24, 2011 04:17 PM
Doug Anderson
Tucker Associates Real Estate Services - Danville, CA
Bay Area Real Estate Views

So very true Tiffany. Less volume equals more volatility and it makes closings a bit tough too with the end of the month getting chopped off.

May 24, 2011 04:17 PM
Dan Derito
Success! Real Estate - Brockton, MA

Spot on, Tiffany. A client had to pay a premium this week to lock in his rate on just a one week extension. 

May 24, 2011 04:30 PM