After the most major meltdown in U.S. stock trading since September 17, 2001, markets appear to be recovering this morning.
This should reverse the drop in mortgage rates we saw towards the end of the day yesterday.
To understand why mortgage rates go down when stock markets suddenly fall, we must look at the investor’s perspective.
When stocks sell off, investors are suddenly holding cash and so they look for places to park those dollars. Bonds are usually the beneficiary which is why major stock market drops are usually accompanied by large gains in bonds.
Because mortgage rates are born from the prices of mortgage-backed securities — a type of bond — days like yesterday are good for home owners and home owners-to-be. As expected, mortgage rates fell late yesterday and have extended those decreases into today.
As stocks recover, however, dollars are pulled from bonds and back into stocks, pushing rates upward.
So far this morning, about half of yesterday’s gains have already been erased.
