When do interest rates go up in Tulsa, OK?
Everybody is talking about interest rates, particularly about how they will move and when to lock your rate in. So, how do interest rates move?
It all starts with securitization. That is when a bunch of individual mortgages are put together into a giant pool of loans. That pool of loans is further segmented down into mortgage bonds, which themselves are classified based on their risk profile – from AAA rated bonds (the lowest risk class) to unrated bonds (or “junk bonds”,the highest rated risk).
Every day, Mortgage Backed Securities are traded, just like stocks – and like stocks, Mortgage Backed Securities are very volatile. Today they moved up and down all day, as they do every day. Now the price of these bonds, and the mortgage rates that are tied to them, move a lot like a teeter totter. When price goes up, rate goes down, and vice-versa. To monitor these price movements, charts are used like this one:
This chart is called a Japanese Candle, and we use these charts to identify and forecast patterns in the bond price movements. These patterns have all kinds of cool “industry” terms, like “downward breakout”, “triple-bottom” and the “double top”. Some prefer to see an “inverted hammer”, especially if it is a lead toward a “heads and shoulder pattern”, which can be an indicator for a Stochastic Crossover. But here is the juxtaposition of it:
Green is Good and Red is Bad.
Anytime you see green on this chart, bond prices are going up and rates are going down.
The point here is that bond prices change constantly and mortgage rates simply follow those prices.
So what can we monitor to stay in front of these price changes?
Well that leads to a big debate in the lending industry: The Ten Year Treasury vs. Mortgage Backed Securities.
Depending on what your read and depending upon who you talk to, many Tulsa, OK, mortgage companies may tell you that the 10yr Treasury is the preferred index for monitoring the direction that mortgage rates are headed towards in the coming weeks. But since most rate locks are in regard to a short term consideration, say 30 to 45 days lock periods, I find this method flawed.
There is a huge difference between the 10 Year Treasury and Mortgage Back Securities. Primarily, there are three:
- Maturity – such as 10 year vs. 30 year, or variable factors
- Risk – such as default or prepayment
- Correlation – short and long term relationships between factors
This is boring stuff, but the point is 10Yr Treasuries and Mortgage Back Securities often diverge, meaning while one is going up the other is going down. If you want to know the value of Apple Stock, you cannot just look at technology indexes or, let’s say, Microsoft stock. If you want to know the value of a specific stock, you have to watch that specific stock. The same principles should hold true to the 10Yr Treasury and Mortgage Backed Securities.
Now, that is not to say that we don’t need to understand 10Yr Treasuries, because Mortgage Backed Securities are competing for the same investment dollar. And by that I mean that the economy as a whole has an impact on the prices of mortgage bonds. Depending on what employment is doing, or gas prices or the stock market – all of these have an impact on the pricing of Mortgage Bonds.
The one thing we should really try to avoid is the media. The mortgage related news is several days behind, at best. When mortgage rates are improving I often will see negative headlines.
So how do you lock into the lowest rate possible in Tulsa, OK?
Contact me, and let’s get ready to be ready. The more we can do to get your credit score over 740, the better the rate. The more we can do to complete document your loan, the shorter lock period we will need. Remember, we can’t lock until we are ready, so quickly we must get ready.
Copyright 2014 John Regur All Rights Reserved – Originally posted at: Tulsa Oklahoma Midtown Mortgages – John Regur