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What's Really Driving Down The 30-Year Fix?

Mortgage Rates Dropping
CNBC.com
Mortgage Rates Dropping

The average contract interest rate for the 30-year fix fell to its second lowest on record last week, hitting 4.96% from 5.14% the week before. Why? Well I called over to the Mortgage Bankers Association and put the question to its associate VP for economic forecasting, Orawin Velz.

She said it was mostly based on the "flight to quality" after Citi stock tanked last week and took the rest of the market with it. So investors headed out of stocks (didn't realize there was anyone in stocks anymore) and headed to Treasuries. That means the price of Treasuries goes up and the yield goes down. Mortgage rates are tied to the 10-year, mostly, so when the yield went down, so did the 30-year fixed. That's conforming, mind you, not jumbo.

"Jumbo rates are all over the board," Greg McBride of BankRate.com tells me. "What one lender quotes at 8 percent, another could be quoting at 6 percent. Community and regional banks are particularly competitive."

McBride also notes something interesting on the conforming rates. He notes the dip last week thanks to the Treasury yield, but adds, "What is telling is that mortgage rates held steady yesterday, even though Treasury yields increased." Perhaps investors weren't buying the one-day rally? Literally.

And yet another note from Velz, she says lenders are telling her that borrowers on the refi side are becoming "spoiled." Yep, even in today's environment. "Below 5 percent you see people move, but when it goes above five they don't," she adds. Lenders are saying that clients tell them, if it goes below X percent, call me. This despite the fact that mortgage rates are very near historic lows.

As for the future, Velz says you can expect to see the rate on the 30-year fixed on conforming (that's usually with 80% LTV, despite the new Obama plan) hover around 5 percent for the foreseeable future. If it starts to spike, the Fed will likely buy more loans, which they are already doing, although we don't really have a handle on how many.

This should be good news for the coming spring market, not that anyone's really expecting much come April.

Questions? Comments? RealtyCheck@cnbc.com