Dear clients –
You might have heard about the upwards pressure on mortgage rates. It is true and it started to materialize at the start of this week as evidenced in our pricing. Before it was just a fear in the market, but now it’s pressures are manifesting in higher pricing. The bottom line is the stock market is responding to the potential stimulus package coming down the pike. As noted many times, a stimulus effort will be perceived as a boost to the economy, which stirs inflationary concerns, and inflation is the arch enemy of Bonds and MBS’s (Mortgage Backed Securities). The stock market is reacting accordingly and stock prices are rising. Remember, when stocks do well, money leaves the safe haven of the Bond and MBS market, and in order to sell Bonds and MBS’s, they have to raise yields to investors (hence higher mortgage rates). Lastly, the only reason why rates were able to remain so low for so long is that the Fed stepped in to keep rates low and have been buying Billions of dollars of MBS’s to keep their yields low. Investors know this and understand yields will need to go higher as the Fed can’t afford to keep doing so. With the acceleration towards herd immunity with the vaccinations, the economy will slowly reopen, unemployment will decrease and the economy improve, all these factors work against mortgage rates. Hope you are all staying well and business keeps improving for you.
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