The last two weeks have seen some of the wildest fluctuations in mortgage rates I have probably ever seen in my 20 years in the mortgage business.
For the most part, rates have zoomed up, although they have eased slightly the last few days.
But as we all know, when it comes to rates they will come down about half as fast as they go up, and I’m not at all sure they will come down by much.
If you are waiting for 3.5 percent I hope you are young and healthy and have a family history of people making to 100.
What caused this is the fear of investors living in a world without Uncle Ben Bernanke riding in on his white horse to save everyone.
Recently the Fed Chairman speculated that the Fed would wind down its economic stimulus by mid-2014.
The howls of anguish must have rocked the foundations of the NYSE as investors panicked selling everything in sight. Stocks, bonds and even gold all were unwanted as investors seemed to think a stash of good old fashioned cash wasn’t so boring.
In addition, many investment banks and funds had borrowed cheap money and invested it in the stock market, and investors did not want to be caught holding stock that might take a few years to reach its potential on money they borrowed short term.
This caused a lot of realigning of investments and probably some paying down of lines of credit.
No doubt there were some margin calls as well going on as investors who heavily leveraged their holdings had to suddenly pay back the borrowed money.
Curiously, the historical trend of fleeing stocks and gold to the safety of T-Bills didn’t happen this time around. Almost like clockwork in the past when stocks dropped the money moved to bonds and yields on bonds dropped. I suspect that this is because of the amount of borrowed money out there.
As a result, there was far less cash clamoring for mortgage backed securities, meaning those selling them to raise cash to lend out in the next 30-60 days had to offer a better return to attract buyers.
This caused a run up in rates in a few days of as much as ¾ percent.
Then by Wednesday of this week there was some weak economic news came out, and fueled speculation mid week that perhaps the Fed would ride in again and hand out money like there was no tomorrow.
This cheered stock owners who hope their picks will benefit from economic stimulus.
This also eased bond holders fears about bond rates zooming to 4 percent (which means those who own them today would suffer huge losses if they had to liquidate them any time before maturity).
There aren’t very many economic certainties out there, but one I would bet heavily on is that the Fed will start backing out, and rates will go up.
That means there are going to be some wild swings in rates and that will keep things interesting.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.