Yesterday's prices for Mortgage Backed Securities (MBS), the bonds that directly impact mortgage rates, did not vary by a significant margin in one direction or another. Today however brought a plethora of economic data for the markets to interpret.
In general, a bullish market is bad for mortgage rates, though there are numerous other factors to consider. But just considering the "bullish market" sentiment, mortgage rates have suffered a bit this morning as the GDP, Jobless Claims, and PCE inflation have all come in relatively on par with analysts' expectations. Even though the readings on these reports are historically poor, the markets always preemptively "price in" those expectations. So when the numbers don't disappoint as much as some think they could have, it leaves some room for stocks to advance. Traders that previously hedged their worries for weakness in the market by buying mortgage bonds (which lowers rates), now are enticed to shift some money back towards other securities. This money leaving the MBS market forces the sellers of MBS to lower their prices to compete. A lower price on MBS means higher interest rates paid to the investors that buy them. And WHO pays for that higher interest return? You do! In the form of a higher interest rate on your mortgage.
At any rate (no pun intended), the above gross oversimplification of dynamics and psychology sets the stage for the rest of the day. Many firms that originate MBS were on "sell" mode this morning, and this depletes inventory. So if the stock market decides that the bullishness was a bit hasty, we could see increasing demand for MBS this afternoon. And this increased demand in the presence of a moderate supply shortage (because MBS were sold this morning), can have a positive impact on rates.
So we will keep our fingers crossed that the Dow cannot stage a rally today and traders will once again seek the safe haven of fixed income investments such as treasuries and MBS. All in all, today's rate might cost between .125 and .25% higher in terms of origination and/or discount cost. If we improve later this morning or into the afternoon, we could get that back rather quickly.