2014 – The Year of the Shrinking Rate
Fueled by low to no inflation, the Federal Reserve MBS purchase program, global economic weakness and geopolitical concerns, mortgage backed securities (MBS) were on a tear in 2014.
The higher a MBS trades for, the lower your fixed interest rate is. Its really that simple. All mortgage rates come from the sale of the corresponding MBS. For example, if you are getting a Fannie Mae 30 year fixed rate, that rate is based upon the price of the FNMA MBS coupon. The chart above shows the steady upward trend of the FNMA 3.50 MBS coupon (you can print out or view a larger version below) which shows the benchmark MBS rising from 99.38 on 01/02/2014 all the way up to 104.32 on 12/31/2014. That is an increase of 494 basis points (BPS) which is unheard of in prior years.
What does that mean for rates? According to the Freddie Mac national weekly mortgage survey, 30 year fixed rates for a conventional mortgage averaged 4.53% with 0.8 in Fees and Points on 01/02/2014. That dropped down to 3.87% with only 0.6 in Fess and Points on 12/31/2014.
When you view the chart in its larger form, you will see the five biggest sell offs of 2014 (which means rates got worse on those days) and the five biggest rallies of 2014 (which means rates moved lower on those days). By evaluating what caused the 10 largest swings, we can learn what domestic and global events really impacted mortgage rates and use that as a solid foundation for looking forward into 2015. Unless you understand and the past, you cannot move forward with modeling 2015.
In the sections below, I have outlined some of the key statistics and events of 2014. As always, I try to keep it simple and easy to understand….so that its useful.
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.The above are the major economic reports that will hit the market this week. They each have the ability to affect the pricing of Mortgage Backed Securities and therefore, interest rates for Government and Conventional mortgages. I will be watching these reports closely for you and let you know if there are any big surprises.