Last week everyone was a buzz with excitement. The Treasury announced they would step up the purchase of Mortgage-Backed Securities issued by Fannie Mae and Freddie Mac in a coordinated move to drive home loan rates down to 4.5%.
As rates have decreased the past week or so, mortgage companies saw an increase in refinance applications. News of rates potentially dropping to 4.5% gave cause for many to take a wait and see approach in hopes of landing the lowest possible rate.
Though the government buying Mortgage-Backed Securities does help drive down rates, it may have been quite careless to announce a target of 4.5%. Since so many factors influence the market which drives rates, no one action can cause the affect they are looking.
Most days, the bond market reacts directly opposite of the stock market. When news comes out that causes a rally on Wall Street, investors typically are pulling money out of the bond market to buy stocks, which in turn causes mortgage rates to increase.
Today we are seeing optimistic economic news that is causing this very reaction. Word of legislators reportedly agreeing to an outline of a deal to rescue the struggling auto industry is helping the stock market. Also helping stocks is the announcement of a massive infrastructure investment pledged by President-elect Obama.
The entire market continues to be extremely volatile and every announcement can cause dramatic swings. Predicting that rates will hit a particular number is both difficult and dangerous. My hope is that rates do continue to decline and spur a recovery of the housing market. Whether or not rates make it to 4.5% is simply something we'll have to wait and see. If we do see a continuance of positive economic news, rates may continue to climb and those who were waiting for 4.5% may have lost a wonderful opportunity.