Fed causes mortgage rates to fall again

Back on Monday I opined in a blog post that anyone who was in the market for a mortgage should wait because rates are likely to come down.

Well, rates have come down!

The average rate for 30-year fixed mortgages was 5.14 percent this week, down from 5.2 percent last week. Last year at this time, the average rate for a 30-year mortgage averaged 6.26 percent, Freddie Mac said. Falling mortgage rates can spur refinance activity, which increased as rates on 30-year mortgages fell to a record low of 4.78 percent in April.

My forecast was based on the fact that the Fed still had over $800 billion in mortgage-backed securities to buy in order to meet its $1.25 trillion purchase target by the end of the year.

An astute reader of this blog added the following comment that day:

"Mike I have to agree with your call for a near term MBS/Treasury rally (and corresponding better rates)..." "I would not want to be short MBS or treasurys with $200B of new reserves backed-up and ready to flood in any week now."

The Fed added reserves, rates fell. Nothing incredible. What's incredible is that people still think the market sets rates.

By the way...we'll be getting the latest reading on the Fed's weekly acitivity this afternoon at 4:30pm ET. I'll make sure to post it or send me an email and I will email my analysis to you.