Mortgage rates benefited from a “flight to safety” this week.
A “flight to safety” happens when investors are nervous about owning risky assets like stocks, but do not want to miss out on earning a return on their funds, so they allocate their money into risk-free government guaranteed U.S Treasury debt to provide a safe-haven AND an investment return. As benchmark Treasury yields fall on “flight to safety” buyer demand, prices of mortgage-backed securities move higher in unison. This allows lenders to reprice their rate sheets for the better and gives originators an opportunity to offer fence-sitting borrowers lower mortgage rates or more competitive closing costs.
Conflict in Libya and the potential for a spillover into other oil producing countries has energy traders nervous about shrinking oil inventories. The chance for a supply/demand driven spike in energy prices is seen as a threat to the already sensitive U.S. economic recovery. Many economists believe rising energy costs would squeeze disposable income on Main Street and hurt consumer spending, which would slow the economic recovery. This “headline risk” pushed stock prices lower and moved money into safe haven assets like U.S. Treasuries and mortgage-backed securities. This ultimately led the Best Execution 30 year fixed mortgage rate lower not once but twice this week.
Purchase Rates, February 25th