mortgage

Why do rates continue to fall?

Thursday, March 18
Written 9:45 a.m. EDT

DOWN SOME MORE: Mortgage rates fell for the third week in a row, even as the Federal Reserve ambles toward the exit. It's weird.

The benchmark 30-year fixed fell 1 basis point in Bankrate's weekly rate survey. Actually, it's a bit of a stretch to say that rates have fallen three weeks in a row; the average 30-year fixed has fallen from 5.15 percent to 5.07 percent in that time. Barely a difference.

All this is happening as the Fed is putting on its hat and coat and getting ready to leave the mortgage market. By the end of this month, the Fed will have bought $1.25 trillion worth of mortgage-backed securities since the beginning of last year. The central bank is more than 95 percent of the way there, and has been tapering off the pace of purchases.

A few weeks ago, virtually everyone expected mortgage rates to rise after the Fed stops buying mortgage-backed securities by the end of this month. Now virtually everyone is puzzling over the fact that rates haven't risen yet. If they were going to go up in April, they should have started going up by now.

In this week's Rate Trend Index, Jim Sahnger makes a good point. He writes, in part: "It appears that new buyers for mortgage-backed securities like what is being underwritten today as the Fed is winding down its purchases. The loans being locked recently are not loans that the Fed will be buying, and rates have held relatively steady since the end of February."

It appears that there is pent-up demand among private investors for mortgage-backed securities. That could explain why mortgage rates haven't risen. When willing lenders outnumber qualified and willing borrowers, rates stay down. Who knows how long this imbalance will last?

Read more mortgage blogs.

advertisement