Here’s how mortgage rates work. It takes quite an effort to get them lower but just a sneeze can cause them to shoot up. Any loan officer with a few years of VA lending experience can tell you that. As the economy slows and consumers keep their wallets closed and purses shut, the Fed will lower specific interest rates in an attempt to spur the economy. That’s the theory anyway. In the current market, the Fed has lowered rates about as far as they can go and have effectively moved the Fed Funds rate to zero.
Investors are a skittish bunch and pour money into stocks when they’re confident of future earnings and can also invest in bonds which provide a guaranteed return, including mortgage bonds. Stocks don’t provide a guarantee but mortgage bonds don’t provide as much bang for the buck, either. Bonds are a “flight to safety” investment that lets investors earn at least something while they wait for the market to turn around. Bonds aren’t very sexy. You’re not investing in Google or Apple stock, for instance.
But because they are low-yielding bonds, the minute investors think it’s time to get out of bonds and back into stocks it happens very, very quickly. Mortgage rates have been known to move up by more than one-quarter of a percent in a single day during a mortgage bond selloff. When bond investors cry, “Sell, sell, sell!” rates can rise so quickly that it can change the minds of those thinking of refinancing or suddenly making a home unaffordable. And we just might be in that sort of a market at this very moment.