It’s as if mortgage rates were being set in Missouri—the “Show Me” state. Each day the mortgage-backed securities (MBS) market examines the news of the day and reacts accordingly. For months market traders simply had to look at events in Greece and US jobs data and, not surprisingly, mortgage rates fell to, and held at, record levels. This week a new dynamic is at play—the Greece issue has been dealt with (at least temporarily) and the US economy, specifically the job market continues to improve. Thus the pressure is clearly on rates to rise.
Yesterday mortgage rates fell after the stock market stumbled on fears that the Greek bailout deal would not solve their problem for very long. While this may be true, it is also true that the deal announced last Sunday did remove the prospect of imminent, disorderly default by Greece. Consequently, other news does have a chance to take precedence in the minds of MBS traders. Today that news is the continuation of the improvement in the US job market.
New claims for unemployment insurance fell from last week’s level and now sit at levels not seen since the very early days of the Great Recession in 2008. Also significant, continuing claims have dropped to their lowest level since August 2008. This means both that fewer people are losing jobs and that more people out of work are finding jobs. That is great news for them and for the economy. But it tends to be bad news for mortgage rates.
But for the big run in the stock market that has pushed values up substantially over the past few months, I believe mortgage rates would be even higher. Many analysts believe that the stock market has moved too far, too fast and are forecasting a correction. When stocks loose favor, other investments like MBS pick up sales which accounts for yesterday’s drop in mortgage pricing. Today the stock market appears set up for a better day and that could lead mortgage pricing higher.
Tomorrow and next week we will back to the daily game of “Show Me” and mortgage rates will react to what they see—with a bias to moving higher.
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