I’ve done a lot of reading over the past several days about the Fed rate cut, if you’ve been following this at all, you’ve probably heard about 10 different opinions on the topic. Trust me, I know the feeling. Before I got into the mortgage industry I was so confused by financial commentary that I thought my head would explode, and that was entirely due to the fact that every commentator has something different to say. I take responsibility in my part of that, and so I’ve decided to explain what may be misunderstood by some.

So Many Economic Factors, Not Enough Time

Probably the major cause of most of the misinformation, or more accurately, incomplete information, is that there simply isn’t enough time in the day to take into account all the different factors that go into explanations and predictions of market conditions, so commentators focus on what they think is important and neglect to mention other things.

In our last article we indicated that mortgage rates dropped as a result of the Fed rate cut on Tuesday. That’s true, but I feel I need to clarify a few things. I’ve taken some snapshots of a rate sheet I receive from one of my lenders every day. The first is from Monday, before the rate cut, the second is from Tuesday, after the rate cut.

Monday 9/17/07

Tuesday 9/18/07

You’ll notice at the top of each image is the pricing for a 6.125% 30-year conforming loan with no adjustments. On Monday, 30-day lock pricing paid a rebate of -0.057%, whereas on Tuesday, the same rate paid a rebate of -0.184% (larger rebate = better pricing).

But now look what happened to rates from Wed – Fri.

Wednesday 9/19/07

Friday 9/21/07

So rates at this particular lender dropped on Tuesday, dropped even further on Wednesday and went back up by Friday. Now, here’s where the real confusion comes in, I have lenders releasing rates that have come down since Tuesday and other lenders releasing higher rates since Tuesday, it completely depends on the lender.

U.S. Average 30-Year Conforming Surveys

It’s important to keep in mind that when commentators mention rates, nine times out of ten they’re talking about the U.S. Average 30-year conforming rates from a particular survey. The problem with this is that you live in one city within one state, so national average rates need to be taken with a grain of salt. Additionally, each commentator is likely quoting a different survey of national mortgage rates. In the left sidebar you’ll notice we have the results of Freddie Mac’s Weekly Primary Mortgage Market Survey; that chart will be different from Bankrate’s Mortgage Trend Index, which will be different from every other survey out there.

The Financial News Media Is Like A Gossip Column

The vast majority of market information from news sources is grossly exaggerated or presented out of context. I read an article on Bankrate’s website yesterday that said rates have gone up 1/8% from last week. Well, if you’re a California homeowner that sounds like the signal to either get mad at your broker for not locking your rate, or to hold off on refinancing for a bit, but wait, look at these rates from last Thursday (that’s as far back as I’ve kept ratesheets):

Thursday 9/13/07

For a homeowner with a $400,000 mortgage, the rate change from last Thursday to this Friday represents an extra cost of $148 and no change in interest rate. I’ve seen higher fluctuations when Kevin Federline comes to town.

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