Rates Going Up over the Holidays????

Mortgage and Lending with Cherry Creek Mortgage Illinois Residential Mortgage License LMB #0005759 Cherry Creek Mortgage NMLS #: 3001 NMLS ID# 158606

Well, the Holidays are officially upon us.  There are so many people who have already left for the holidays.  We're seeing what happens during this time each year.  Rates generally go up.  That is exactly what has happened during this season.

Last week the Fed announced that it was going to buy up most of the mortgage backed securities.  When mortgage backed securities or MBS's are bought up, rates drop down.  Most people think that when the stock market goes down rates go down or even inversely when the stock market goes up.....rates go down.  The reality is that there often times is a parallel relationship.  But mortgage markets aren't determined by bond prices or bond yields.  Nor are rates determined by how good or how bad the stock market does.....

THE BOTTOM LINE is that rates are determined by the movement of mortgage backed securities or, again, MBS's.  The more that MBS's are bought, and the more scarce that they are in the financial markets, the more that you will see rates drop.  The more that MBS's are available, the higher the rates. IT'S THAT SIMPLE TO UNDERSTAND. 

So....why rates increasing over the Christmas season?  This too, is fairly simple to understand.  Basically, many wall street execs are off for the holidays.  With the recent volatility in the market, they traders don't want to have exposure through a position in the market.  In other words, if they buy a lot of MBSs and the rest of the world is selling....well....if they're on vacation, they're stuck with product and are having a very miserable Christmas.  However, if they sell their position or a portion of their position prior to going "on Holiday, they can relax while on Holiday.  It's easier to buy back a position after Holiday than trying to sell their position. 

Therefore, rates are expected to go up during Christmas and New Years....This is a general rule.  Markets will still drive the deman for MBS's up and down.  Markets will be active and still directionally determine the direction of MBS's.  But all things being equal, the rates would still increase a bit as traders hedge their position in the market. 

That means, that, all things being equal....that rates should come back down AFTER THE FIRST OF THE YEAR, as investors get back into the markets.  Capiche?  That's the ticket friends. 

We'll see what markets do to the rates keeping in mind that traders are liquidating their position and exposure now.

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Lynda Eisenmann
Preferred Home Brokers - Brea, CA
Broker-Owner,CRS,CDPE,GRI,SRES, Brea,CA, Orange Co

Hi there,

Thanks for the info. I've noticed a slight tick up the past few days, is that correct? My lender of choice mentioned the same thing. I have one closing on the 24th at 4.7/8, fixed-20% down, my buyer began at 6% so she's a happy camper.

It will be interesting to see where rates are after Christmas. What an amazing time!

Dec 22, 2008 03:56 PM #1
Michael A. Caruso
Surterre Properties - Laguna Niguel, CA

Rates went up and gas prices went up...and your are correct - this is consistent with the holidays.  It's called the 'greed factor'.

Let's hope things settle back soon.

Merry Christmas.

Dec 22, 2008 04:00 PM #2
Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

The daily update from our in-house lender indicated that it's still possible to get rates less than 5% on a 30-year fixed if you pay 1 point.

Dec 22, 2008 04:07 PM #3
Jean Powers
Kane & Associates call 510.908.9002 - Alameda, CA
CRS,e-PRO,HAFA,SFR Broker, Northern California

I think they will go down again. thanks for the post

Dec 22, 2008 04:34 PM #4
Pacita Dimacali
Alain Pinel - Oakland, CA
Alameda/Contra Costa Counties CA

Will check to see if you're right. That would be more incentive for folks to consider making their move after the holidays.


Dec 22, 2008 06:29 PM #5
Tere Rottink
CoastalVa Realty Inc - Virginia Beach, VA

Good to know.  But, like those wall street execs, I am off for the holiday. 

Merry Christmas to you and your family.

Dec 22, 2008 09:37 PM #6
Paul McFadden
Paratex - Seattle, WA
Pest Control, Seattle, WA.

Larry: Thank you. I appreciate your insight. Any more, who knows? Yesterday, rates worsened yet market activity was light. It used to be as simple as explaining that when stocks were down, mortgage rates were as well due to a flight to safety. Now it seems to be more mood driven. The funny thing is the bond yield is so low yet people keep investing in them. Eventually people will get comfortable with putting money into the market again and I expect interest rates to rise at that time. When will that happen? I would think by the Spring although rates usually start going up then anyway. We shall see. I believe 2009 will be a very interesting year. Slightly better than 2008, but not a breakthrough yet. Take care. Thanks for the post!

Dec 23, 2008 01:29 AM #8
Not a real person
San Diego, CA

Interesting. I've seen two mortgage lenders here offering 3.83% APR and 3.87% APR. Gas, on the other hand, has gone up 18¢ a gallon this past week.

Best wishes for health, happiness, peace, and prosperity in 2009.

Dec 23, 2008 03:27 AM #9
Stephen Kappre
KW Hometown - Mantua, NJ
Helping You Home

I think the MBS word is finally starting to get out, after years of us hearing people quoting the 10-year or this or that.  Like Paul says "who nows anymore" I used to follow the markets, the candlesticks, all of it - until it started to all go out of the window.  Our financial news could completely suck, but some politician says 3 words and the market does rollar coaster moves. I've been saying it for a month - if you like the rate LOCK IT!

Dec 23, 2008 12:16 PM #10
Jay Williams
Greenville, NC - Greenville, NC
Mortgage Loan Officer - Getting You The Right Loan

Larry it will be fascinating to see if your theory on MBS and the holiday season comes to pass. Makes sense positions would lighten to reduce exposure.

Hope your right.


Dec 23, 2008 02:22 PM #11
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