Why the volatility in the mortgage market isn’t going to subside any time soon…..

What’s the VIX anyway?

The VIX is a volatility index on the Chicago Board Options Exchange that tracks how volatile the movements in the S & P 500 are. The VIX is above 30 again. 

So what does that mean for mortgage rates?  Let me explain:

• If you look at things on the surface, things appear to be relatively stable.
• But there is more going on than meets the eye.   There are a lot of turbulent things brewing under the surface.
• Don’t be surprised if the financial markets make a pretty major move in the near future.

What are the potential ramifications for mortgage rates?

• If the stock market makes a substantial move downward, it could push money into the bond market and that would drive rates down.
• If the stock market takes a MAJOR move downward, the money that comes out of the stock market could jump straight to cash and that would push rates up.
• If the stock market takes a move downward and the market remains nervous about the government’s borrowings, rates would go up.
• If the government makes a major “statement” or new “policy initiative” when the Fed meets this week, then all bets are off.

Stay tuned, it’s going to be an interesting and very wild week!

VIX Soars as Signs Increase For Summertime Stock Blues - Markets * US * News * Story - CNBC.com

Wall Street’s favorite fear gauge soared more than 13 percent Monday, reflecting trader sentiment that the stock market is likely to move lower.

The Chicago Board Options Exchange Volatility Index [VIX 31.13 3.14 (+11.22%) ] again climbed past the 30 level amid a gloomy outlook for the global economy that presaged a sharp negative move from stocks. A reading of 30 or better is generally indicative of high volatility and seen as a bearish sign for the broad-based Standard & Poor’s 500 index.

June 22, 2009