Greek Debt Concerns Are Dropping Mortgage Rates For Home Buyers And Refinancing Households

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Home buyers in Cincinnati are getting a terrific break this week.  Mortgage rates are falling because of events occurring 5,444 miles away.

Growing concerns that the Greek government will default on debt are pushing the nation's risk premiums beyond junk levels.

At one point yesterday, the 2-year Greece note yielded a whopping 25 percent.

Safe Haven Buying Draws Rates Lower

When investors require a 25% return on investment, you can be sure they're sensing a potential default.

And now, that default concern is now spilling beyond the Greek border to the rest of the PIIGS -- Portugal, Ireland, Italy and Spain. Contagion mentality has set in.

Markets have moved into Safe Haven mode.

"Safe Haven buying" is market jargon. It describes a risk-averting trading pattern that tends to emerge during periods of economic uncertainty. It's characterized by large groups of investors moving money away from riskier investments and into safer ones.

When in doubt, get out.

Mortgage Bonds Get An Unexpected Boost

Safe haven buying is a logical approach to investing, really. Rather than doubling down on a risky bet, cash out to protect against further loss.  They take those proceeds and stash the cash somewhere safe until certainty returns.

This is why safe haven is sometimes referred to as a "Flight to Quality". Money flows from risk to risk-less.

Either way, mortgage rate shoppers have cause to yell Opa!  Mortgage bonds unwound 3 weeks of losses in 20 minutes Tuesday for no other reason than because of Greece and fear of a debt default.

30-year fixed mortgage rates fell to 5 percent for the first time since March.

See, when the Federal Reserve left the mortgage-backed market March 31, 2010, mortgage rates were supposed to rise back to 6 percent.  The thing is, Greece has kept that from happening. Bonds demand is high right now.  Prices are up and yields are down.

Mortgage rates move opposite prices for mortgage bonds.

Take Advantage Of Low Rates. They Won't Last.

Rates are low now.  It won't last.  It can't last.

One major reason why low rates won't last is that fear contagion is often overblown and it doesn't last forever.  Already today, in fact, we're seeing pullback from the initial market reaction to the PIIGS.Secondly, the U.S. economy continues to expand, a development that spurs risk-taking at the expense of the bond market.

Both of these development should push mortgage rates higher. Sooner rather than later.

The time to lock your rate is now.to get your rate lock underway.

Mortgage Rate Lessons We Can Learn From Greece

If nothing else, the Greek government debt situation vis-a-vis the mortgage market highlights a key theme on The Mortgage Reports. The events we can prepare for, those aren't the ones that drive mortgage rates the most.

It's the events we never predicted at all.

In Cincinnati, in Columbus, and in every town in this country, mortgage rate shoppers are getting a gift.  Rates should be high, but they're not.  Because of Greece and the PIIGS.  Tomorrow, though, the situation could change.  All it would take is international aid to Greece.  And that's in negotiations as we speak.

Once there's less fear of default, there's less need for safe haven buying.  Mortgage rates will rise.to execute your rate lock before that happens.