Why interest rates and mortgage rates are falling
Two weeks ago in Mortgage rates dip below 4% – again I wrote this in answer to the question about the impact on mortgage rates when the Fed does increase rates: The Fed’s move will affect short-term interest rates. As the Wall Street Journal stated this week:”Rates for fixed-rate, 30-year-mortgage loans key off the 10-year Treasury yield. So, with most observers predicting 10-year yields will remain fairly stable as the Fed begins to tighten, people with relatively good credit standing should continue to see loan rates near 4% or only a little higher.”
My point, that even if the Fed does raise rates in September – which seems less likely after the setback in world stock markets this week – the impact on mortgage rates will be limited, was reinforced by this Why are Bond Yields falling if the Fed is going to raise interest rates? Charles Schwab article. (more…)
Mortgage rates dip below 4% again – where next?
National mortgage rates for the 30 year FRM (Fixed Rate Mortgage) dipped below 4% again this week after seven weeks above 4%.
Source: Freddie Mac
And the 30 year FRM is still lower than it was a year ago:
Source: Freddie Mac
Forecasting that mortgage rates will rise has been a favourite occupation of soothsayers ( or economists as they like to call themselves) for a couple of years now. My last article on the subject in June was Mortgage rates “forecast to reach 4.5% by year end”, quoting the Mortgage Bankers Association.
When will the Federal Reserve raise rates? (more…)
“Buyers are coming back in force”
That quote comes from Lawrence Yun, chief economist at the National Association of Realtors (NAR), following publication of the NAR’s Economic and Forecast Update.
Highlights of the report include:
– Existing home sales in May were the highest since 2009, when there was a homebuyer tax credit
– Pending home sales hit a 9 year high
– New home sales hit a 7 year high
– Housing permits for new homes hit an 8 year high
– and
Even CNBC doesn’t understand the bond market
Bond market lesson 1: when prices go up (generally considered a good thing by investors) the yield goes down. (more…)
Mortgage rates “will reach 4.5% by year end”
In a report this week the Mortgage Bankers Association stated: “Our forecast has mortgage rates increasing to about 4.5% by the end of 2015, and rising further next year.” Click here to read the full forecast.
Mortgage rates do fluctuate and vary from lender to lender. For example, despite the headlines, it was possible to find quotes at the end of this week for 30 year jumbo mortgages under 4%, while both 15 year FRMs and 5/1 ARMs were available at 3 1/8%. (more…)
Mortgage rates spike; will housing market collapse?
I have been warning for some time Mortgages rates: how low can they go?, Have mortgage rates bottomed?, Mortgage rates are rising that mortgage rates were likely to rise and this week they did spike, with the 30 year Fixed Rate Mortgage (FRM) at National Grand Bank in Marblehead increasing from 3.75% to 4%, with the likelihood that the rate will move to 4 1/8% on Monday after movement in the bond market on Friday.
The second part of the headline refers to a number of comments I have heard in the last few days about how the spike in mortgage rates may kill off the still-recovering housing market. It won’t. (more…)
4 reasons home prices will keep going up
Here are 4 reasons home prices will continue to increase over the longer term: (more…)
Mortgage rates are rising….
The temperature’s rising….and so are mortgage rates, with the 30 Year Fixed Rate Mortgage (FRM) back to its level at the beginning of the year.
I published two reports earlier this year: Mortgage rates: How low can they go? on January 17 and Have mortgage rates bottomed? on February 14. In them I set out some basic information about mortgage rates and the “spread” between the FRM and the yield on 10 year Treasuries*.
Here is the weekly data for this year, showing the FRM at 3.85%. The rate dropped by about 1/4% earlier in the year and has now reversed that drop:
Source: US Treasury, Freddie Mac
Why did mortgage rates drop?
After years of dithering the European Central Bank finally embarked on a program of Quantitative Easing (buying Government securities) in March, but in anticipation of the start of the program investors worldwide went on a bond buying spree driving yields on Government securities to extremely low levels. The chart below shows yields in January (blue), the lows reached (orange), largely in February, and current yields (gray). Quite a ride!
Source: US Treasury, Tradingeconomics.com
And one final chart, showing the movement in exchange rates this year
Source: tradingeconomics.com
Whence from here?
A lot of the strength of the US Dollar earlier this year was based on the assumption that interest rates would rise soon. As the economy has produced less than forecast growth, in part because of the winter weather and collapsing oil price, in part because of the strength of the dollar, so expectations of rising interest rates have been pushed out further.
The median and average spread in the table on mortgage rates and 10T yields above are 1.70 and 1.72. On Friday the yield on the 10T dropped to 2.14, meaning the spread was 1.71 based on a 3.85% FRM rate.
Late on Friday HSH.com published this comment: “Mortgage rates firmed a little bit more this week, cresting at the highest levels in six months, but it appears that the four-week rise in rates is over, at least for now. The global selloff in bonds — essentially, a repositioning by investors in light of changes in currencies and central bank programs — pushed mortgage rates up by a little more than a quarter percentage point from the 2015 lows of mid-April.”
Trying to time the mortgage market is a bit like trying to time the stock market. More to the point, mortgage rates below 4% are very attractive. The bigger challenge for buyers is finding a house at a time of widespread scarcity.
*The benchmark for the 30 year mortgage is the 10 year US Treasury yield. What does that mean? In general, banks sell the mortgages they issue to Fannie Mae or Freddie Mac who in turn package them into pools and sell them to investors. Because mortgages have higher risks than US Treasuries, investors demand a higher yield than they would accept from Treasuries. The difference in yield between mortgage securities and Treasuries is called the spread.
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or [email protected].
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
You can REGISTER to receive email alerts of new posts on the right hand side of the home page at www.OliverReports.com.
@OliverReports
Would you like free college tuition with that mortgage?
It’s that time of year when college choices have to be made – and financing decisions also – and so I would like to update an article I first wrote a couple of years ago.
What is the difference in interest payments between a 15-year and 30-year mortgage on a $500,000 loan?
Go on, guess. $25,000? $50,000? That sounds like a lot, but it’s not even close. (more…)
5 mortgage predictions for 2015
The Federal Savings Bank, despite its name, is a private bank. It has just released the following predictions for 2015:
– mortgage rates will remain low in 2015, with the Federal Reserve hesitant to raise rates
– mortgage application volumes will increase, driven by low rates and improvements in the job market
– refinancing activity will increase
– slow international growth will keep US interest rates low
– prospective homebuyers may be more confident about entering the market (more…)
Mortgages: another last chance to lock in low rates?
A funny thing happened on the inevitable path to higher mortgage rates: they went down again, back close to the lows for the year. Bear in mind that a year ago the 30 year rate was 4.40%. (more…)
Have mortgage rates bottomed?
That’s a bit like saying: is this weekend’s storm the last major one of the winter? The answer is….maybe. Nevertheless, mortgage rates have moved up recently, largely reversing the drop experienced in January when geopolitical factors – the usual suspects, Greece and Russia – contributed to a drop in the yield on the US 10 year Treasury from 2% to 1.7%. That yield has now recovered to 2%, and the 30 year mortgage rate is more or less back to where it was at the beginning of the year, depending on which survey you read (see below for details and comments). (more…)
The Mortgage Mistake?
In this article The Mortgage Mistake from a recent issue of The New Yorker, sent to me by fellow Harborside Sotheby’s agent, Joe McKane, the writer argues that incentives to encourage home ownership – including subsidized mortgage rates and tax deduction of mortgage interest – do little to increase the number of homeowners. Other Western countries have similar rates of home ownership without the same range of incentives.
Almost all the economic benefits of the mortgage deduction go to people earning more than $100,000 a year. Result: people overinvest in housing and underinvest in other types of asset. And because people tend to invest more in housing when the economy is doing well and less when it is doing poorly, housing tends to amplify the economy’s ups and downs.
The trigger for this article is the new 3% down mortgage offered by Fannie Mae and Freddie Mac for first-time home buyers (see my recent 3% down mortgages are back post.) Default rates for mortgages with down payments of 3-10% are almost 50% higher than for those with down payment above 10%. Thus, the New Yorker writer argues, while the new mortgages may turn more low-income people into homeowners, it will also likely increase the default rate.
Two questions come to my mind: is increased home ownership an unarguably good thing? And does mortgage interest deduction encourage home ownership?
(more…)
Reasons to Sell your Home in Winter
Today’s Boston Globe carries this article Why selling in winter may be a good idea.
In addition to the benefits mentioned – less inventory means less competition for sellers, while those buyers who are out there are serious – I would add that mortgage rates have dropped sharply already this year and are not far off record lows. See my Mortgage rates: how low can they go? post from yesterday. (more…)
Mortgage rates: how low can they go?
Remember the forecasts of 5% mortgages? 6% mortgages?
Well here we are in January 2015 and the 30 year mortgage rate is well below 4%. In fact I was in a Bank of America branch this week and saw a sign for 30 year mortgages at 3.5% (with points), while the national average reported by Freddie Mac on Thursday was 3.66%.
The benchmark for the 30 year mortgage is the 10 year US Treasury yield. What does that mean? In general, banks sell the mortgages they issue to Fannie Mae or Freddie Mac who in turn package them into pools and sell them to investors. Because mortgages have higher risks than US Treasuries, investors demand a higher yield than they would accept from Treasuries. The difference in yield between mortgage securities and Treasuries is called the spread.
This chart shows the spread from 2005 to 2014. I have summarized the high and low spread for each year in the table below the chart. For most of the period the spread was between 1.50% and 2.00%. It was over 2.00% throughout the crisis year of 2008 and did not drop below 2.00% until April 2009, but has been below 2.00% almost the entire period since then. What does this mean for mortgage rates?
Sources: US Treasury, Freddie Mac
Source: US Treasury, Freddie Mac
The 10Y Treasury yield on Friday was 1.84%, so adding a spread of 1.50 – 2.00% would produce a 30 year FRM of 3.34 – 3.84%. And we are at 3.66%.
Where does the 10 Y Treasury yield go from here?
I think every expert forecaster has been wrong on US interest rates. The assumption was that once the Federal Reserve stopped buying mortgage backed securities and Treasuries (Quantitative Easing), interest rates throughout the economy would rise, driven by a strengthening economy and hence the demand for loans to finance business and mortgages. What has got in the way of that forecast, in simple terms, has been: geopolitical risk (Crimea, Ukraine, terrorism) which always leads to a flight to safe investments, and US Treasuries are regarded as the safest investment available worldwide; and grave concerns about deflation in many parts of the world, but especially in Europe, where a huge expansion of QE is expected to be announced next week.
The US is growing economically quite strongly and has stopped its QE program, while Europe is stagnating and about to ramp up its QE program. One of the consequences of this divergence has been a stronger US dollar which is one of the factors behind the collapse in commodity prices.
And on top of this, which in itself fuels the demand for US Treasuries as a safe haven in a strong currency, the yield on US Treasuries is higher than that available in many other countries.
Source: Bloomberg
Predictions
As I have said many times predicting the future is very difficult! Very few countries in Europe have even started on the structural changes necessary to get their economies moving, and many commentators fear that QE is seen as a free lunch, when the only thing that is certain is that it will lead to even greater debt in already over indebted countries. No wonder the US is seen as a safe haven!
It does seem that the biggest concern worldwide is avoiding deflation and it is hard to see how interest rates can rise against that background. In the beginning of 2015, buyers of homes in the US have been given an unexpected opportunity to finance their purchases at interest rates close to the lowest ever seen. Could mortgage rates go even lower in the coming weeks? Certainly, but with the time lag involved when buying a home, trying to time interest rates, like trying to time the stock market, is unlikely to be a successful strategy. Rates are very low: take advantage of them!
If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or [email protected].
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
You can REGISTER to receive email alerts of new posts on the right hand side of the home page at www.OliverReports.com.
@OliverReports
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