Mortgage Rates Nicely Lower to Start The Week

Mortgage rates are primarily driven by changes in the value of certain bonds that trade on the open market.  Those bonds (mortgage-backed securities or "MBS") tend to move much like longer-term US Treasuries.  No other component of mortgage rates comes close to having as much of an impact.

That's very interesting on a day like today because MBS suggested rates should be flat, or close to it.  In reality, the average lender is noticeably lower compared to last Friday.  You'd have to go back at least 3 weeks to see anything lower.

What's up with that?

One component of mortgage rates that's NOT related to the price of underlying MBS is that of lender strategy.  This can involve something like the decision to play it safe amid periods of volatility or ahead of key events that might cause a bigger movement.

In the current case, today's low rates make decent sense given our common 3-day weekend observations.  Simply put, lenders tend to keep rates a bit higher than they need to heading into a 3-day weekend.  As such, if MBS are steady to slightly better at the start of the next week, lenders can give back some of the cushion and rates can be lower, even if MBS says they should be flat.

One other factor in play at the moment is the relatively narrow range overall.  A narrow range means it takes less movement for highs to become lows and vice versa.  While the recent range isn't necessarily extremely narrow, it's definitely been flat and narrow enough for swings between highs and lows in the space of a day or two.