Why did Mortgage rates change so significantly so quickly?

Usually mortgage interest rates move in direct correlation with how the bonds are doing and whether bonds are trading in the positive or the negative. In the old days we could just note when stocks were not doing well which meant that interest rates would go down. If stocks were doing well and everyone was putting their money in the stock market that meant bond prices were changing and our interest rates would go up. But that hasn’t been the case in the last few years; it has been harder to predict due to the change in how the bonds are structured and purchasing off the market with what is called mortgage-backed securities.
The federal government made several policy changes and when it became less attractive for investors to purchase mortgage-backed securities, they stepped in and said they would agree to purchase a billion dollars + of them. That has enabled us to have a great run in the bond market. It has kept mortgage rates very low over these last couple of months. The problem was that there were too many mortgage-backed securities for sale so there was a surplus and the government was not able to buy all that they needed to buy. One expert explained it to me this way: the rate of return on mortgage-backed securities was a very unattractive offer to investors. Thus, the only purchaser of the securities was the federal government. When it ended with a huge surplus, it spiked the bond market.
Then things changed and the stock market began declining. We then went back to the old way we used to look at things: when stocks are in trouble, usually bonds are more in favor. That certainly happened over the last five days. We’ve seen now over these last couple of days that the bonds are recovering. When you look over to the right of this page and look back at the last three or four weeklies, you can see that we are getting close to where we were a month or two ago but we are not quite there yet. The questions are: will we ever, how much lower can they go and where’s the floor? No one can know that for sure.
I research a tremendous amount on bonds and watch their daily progress and their trends and I feel I have a good sense for when they are beginning to tick up and when they will tick down. I did have a lot of confidence over the last couple of weeks when the rates ticked up that they would come back down because this surplus had to even itself out and then the bonds would become more attractive. I wish that I could always positively predict them and be able to tell clients exactly where the rates would be in the next day or tomorrow or the next month, but it is fairly ‘trackable’ by their history.
Where do you see rates going? Do you see us at our floor? Do you think that the next time rates begin to rise; they will continue to do so? It was this time last year that many experts predicted that our mortgage interest rates for a 30 year fixed would be well above 6.75%. That obviously did not happen. Now the experts all agree that we have had a great run and that, even with the government purchase of mortgage-backed securities, we may have run our course and it is time for rates to slowly start heading up. I don’t see it that way. I have tracked rates for the last 8 years and I have seen that interest rates typically tend to be lower over the summer and begin to tick up during the winter. I don’t think we will have huge spikes all summer long……but I could be wrong.
Let me know what YOU think.

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