This morning we had the release of Consumer Confidence. This report is a gauge on how the consumer feels about our current economic conditions and their expectations for the future. No big surprise that this report came in at a record low reading of 38, economists where expecting a 52.0 reading after last months 59.8. After the release of this report, we did get a slight improvement to the mortgage backed security market.
Yesterday, we had a big sell off and lost about 1 discount point which equates to about .25% higher mortgage rates. It appears investors are not liking mbs, but the main sellers are money managers who need to sell assets to come up with cash. Many people are calling their money managers telling them they want to pull their money out of the fund, so the money manager has to come up with cash. One of the easiest assets for them to sell are mortgage backed securities, thus as mbs are sold, it drives the price down(more sellers then buyers equals lower price) and raises the yield(higher mortgage rates). There still remains much fear in the markets and many investors are going to cash as cash is king in todays market.
Today, the fed starts their 2 day meeting with their rate annoucement tomorrow. The futures market are pricing in a 100% chance of a .50 reduction and there is even some talk of a .75% reduction which would lower the fed fund rate to .75%. The fed fund rate has never been lower then 1%, so i feel the likely move tomorrow will either be a .50% or .25% reduction. Remember, the fed does not set rates on mortgages so when we get the cut to the fed fund rate, do not assume mortgage rates are lower. A good way to illustrate this to you is back in January of 2008, the fed fund rate was 3.25% and a 30 year fixed rate mortgage was well under 5.5%. Today, the fed fund rate is 1.50% and a 30 year fixed rate mortgage is around 6%. So, when you look at that it proves that when the fed cuts rates, mortgage rates sometimes rise. The more important piece of fed announcement will be the statement they release.
On tomorrows blog, we will update you in the morning and do a 2nd update after the announcement.