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So far today, the Dow Jones Industrial Average is down more than 200 points and trading curbs have been put into effect. This is good news for mortgage rates.
If stock markets were the Oscars, we'd have seen about fifteen Jack Nicholson reaction shots by now.
When stocks markets drop suddenly, investors want to stem their exposure to a reeling market so they sell some of their position(s).
When an investor sell stocks, he gets cash in return for the sale. The investor can then choose to keep the cash, or buy something else.
Not wanting to be out of the market entirely, an investor will usually buy bonds because the rate of return is a known quantity and because bonds tend to be less risky than stocks.
When demand for bonds increase, the price of bonds go up. Higher bond prices drives the bond yields lower and that spills over into most bond markets, including mortgage-backed bonds.
Most mortgage rates are rooted in the mortgage-backed securities market and this is why stock sell-offs usually lead to drops in mortgage rates.
Currently, rates are on the verge of an intra-day re-price for the better but, as Phil Leto reminds us:
When rates decrease, they take the stairs. When rates increase, they take the elevator.
If the situation were reversed in the stock market, mortgage rates would have repriced several hours ago.
Dan Green (NMLS #227607) is an active loan officer with Waterstone Mortgage. Email Dan ator click to get a free, no-obligation rate quote.
You can also find Dan on Twitter and Google+.
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