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RateWatch chart explanation
This chart shows the actual price of the Fannie Mae 30 year 4.5% bond since May of 2007. This is a MBS (mortgage backed security). We also call it a mortgage backed bond (MBB).
Here is how it works. When investors are optimistic they buy stocks. When investors are pessimistic they buy bonds. We often call this a "flight to quality".
When there are a lot of investors buying MBS the price goes up. When the price goes up, the rate of return (mortgage interest rate) goes down.
It is the old law of supply and demand. When few people are buying your product, you must offer a higher rate of return to attract more buyers. The opposite is true when a lot of people are buying.
The reason why mortgage interest rates are artificially low right now is because the Federal Reserve is buying MBS. They are a huge buyer who actually wants their rate of return to go down, so mortgage interest rates are lower than they would be if the Fed were not buying.
Here is how it works. When investors are optimistic they buy stocks. When investors are pessimistic they buy bonds. We often call this a "flight to quality".
When there are a lot of investors buying MBS the price goes up. When the price goes up, the rate of return (mortgage interest rate) goes down.
It is the old law of supply and demand. When few people are buying your product, you must offer a higher rate of return to attract more buyers. The opposite is true when a lot of people are buying.
The reason why mortgage interest rates are artificially low right now is because the Federal Reserve is buying MBS. They are a huge buyer who actually wants their rate of return to go down, so mortgage interest rates are lower than they would be if the Fed were not buying.
This is the chart that I show on my blog. It only goes back three months and shows more daily detail. You do not need to be too concerned about the shape of the candle sticks. Really all you need to do is look at the trend. If the trend is going up, then mortgage interest rates are going down. If the trend is going down, then mortgage interest rates are going up.
I put the green arrow on the image. I use a green arrow to show when MBS are trending up and a red arrow to show when MBS are trending down.
The pink line is the 200 day moving average. The blue line is the 10 day moving average. A rule of thumb is that anytime mortgage backed securities are trading above both trend lines it is a good time to lock.
It is ok to float when mortgage backed securities are trending up, but if your loan needs to close in the next month you should probably lock the second they start trending down.
The arrow in the upper right corner shows what is happening up to the minute. When I captured this image MBS were down 12 basis points (.12) for the day.
That is basically it. It is really pretty simple once you understand what you are seeing. The most important thing to know is that I constantly monitor the charts and I know what is going on. I will do my best to give you and your clients the best advice as to when to lock! Please contact me if you have any questions.
