Mortgage rates steady at 3%
Mortgage application volume decreased 5.1% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand is still considerably higher for refinances and purchase applications than it was a year ago.
Applications to refinance a home loan, which are most sensitive to weekly rate moves, fell 7% for the week but were 84% higher annually. Generally, if a borrower can shave 75 basis points off their current rate, it makes financial sense to refinance. So many borrowers have already refinanced that there may not be significant interest for doing so. Still, at today’s low rates, close to 18 million borrowers with good credit scores could benefit from a refinance, according to calculations by Black Knight, a mortgage data and analytics firm. (CNBC).
“MBA’s forecast calls for rates to remain at these low levels, which will continue to spur strong refinance activity and offer homeowners relief in the form of lower monthly mortgage payments during these uncertain economic times,” said the association’s forecaster Joel Kan.
Mortgage applications to purchase a home also fell for the week, down 2%, but were 22% higher than a year ago. Buyer demand was strong heading in to the spring market and appears to have gained strength from the Covid pandemic, as consumers stuck in smaller homes or urban apartments sought more space in the suburbs. The biggest problem is a lack of supply and rising home prices. That is keeping some potential buyers on the sideline.
“Purchase loan balances continued to climb, which is perhaps a sign that the still-weak job market and tighter credit for government loans are constraining some first-time homebuyers,” Kan said.
In Essex County, 30-year mortgages for borrowers with 20% down and a credit score of 720 or better are available at 3% with no points; 15-year loans with no points are 2.75%.
Please call me for an introduction.
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Mortgage demand remains strong
Total mortgage application volume fell 0.8% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
Mortgage applications to purchase a home were 2% lower last week than the previous week but a strong 21% higher annually. Homebuyers are making up for lost time last spring and appear to have a new urgency to move due to the Covid-19 pandemic. Buyer demand for new construction is especially strong, as the supply of existing homes for sale continues to shrink.
Applications to refinance a home loan were basically flat, falling 0.4% for the week but were 121% higher than a year ago. Refinance demand has been riding high because mortgage rates keep falling. Even small rate moves open the field to more borrowers who can benefit and save much-needed cash on their monthly payments. (CNBC)
Mortgage rates dip below 3% – where to next?
Goodbye Boston, Hello Marblehead
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Weekly mortgage demand from homebuyers jumps even higher, up 19% annually
“Homebuyer demand is heating up with it. Add that to an already strong refinance market, and total mortgage application volume rose 4.1% last week from the previous week, according to the Mortgage Bankers Association.
Helping to fan demand were mortgage rates hovering near a record low.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $510,400 or less increased just barely to 3.20% from 3.19%. Points, including origination fee, increased to 0.35 from 0.33 for loans with a 20% down payment.”(CNBC)
“Mortgage applications increased last week despite mixed results from the various rates tracked in MBA’s survey,” said Joel Kan, an economist for the Mortgage Bankers Association. “The average 30-year fixed rate mortgage rose slightly to 3.20%, but some creditworthy borrowers are being offered rates even below 3%.”
As I have pointed out before, well-qualified buyers can now get 30-year mortgages at or even a little below 3%.
Goodbye Boston, Hello Marblehead
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rates dip below 3% – where to next?
In yesterday’s post I wrote that, over the last 15 years, “the 30-year Fixed Rate Mortgage (FRM) has averaged a spread of about 1.7% above the yield on the US 10-year Treasury (10T). With 10T yielding 0.62% that would imply a normalised FRM of 2.32%. But, as you may have noticed, these are not normal times.”
The vast amount of liquidity the Federal Reserve has pumped into the economy continues to sustain the stock market and has stabilized mortgage markets. Hence, we are seeing the spread referred to above come down from a high of 2.7% to the current 2.36%, still above historical levels.
What drives mortgage rates?
First, I will explain the link – or lack of link – between the Federal Funds rate (FF) and FRM – and what actually drives mortgage rates.
Five charts explain the factors driving mortgage rates. Mostly, the dates are those when the Fed has changed the FF over the last 5 years- 10 increases, followed by 5 decreases – plus two subsequent dates in 2020.
Fed Funds rate (FF)
The Fed Funds rate is the rate at which banks lend to each other overnight.
After increasing from 0% to 2.5% since late 2015, cuts in 2019 and 2020 have lowered the rate back down to 0.25%, following the dramatic and proactive cuts in March.
30-year Fixed Rate Mortgage (FRM)
The FRM reached nearly 5% in late 2018 and dropped to just below 3% for the first time this week.
10-year Treasury yield (10T)
The yield on the 10T is influenced by two major factors: the outlook for the economy (expanding businesses invest creating demand for money) and geopolitical events – the US dollar and US Treasuries are seen as a safe haven during times of uncertainty.
The yield reached 3.2% in November, 2018 (which was the time of the peak in the FRM), eased back under 2% in 2019 and then plummeted from 1.88% in early 2020 to just 0.58% in late April. It has mostly stayed in the 0.6-0.8% % range since then.
The spread, or difference, between FRM and FF
If there were a link between FF and FRM it would show up in this chart. In fact, the spread dropped from 3.7% in 2015 to 1.5% in 2019, increased to 3.26% in March and has since dropped back to 2.73%, demonstrating that there is no direct link between FF and FRM
The spread, or difference, between FRM and 10T
We see more consistency between FRM and 10T, where the spread was in a much tighter range of 1.5% to 1.8% until the second half of 2019 and into 2020.
Indeed, over the last several years the spread between FRM and 10T has been very stable averaging around 1.7%. But I would point out two things in this table: first, the spread widened significantly in the Great Recession in 2008; and, secondly, while the median spread for the year has been in a narrow range, within the years there have been quite wide variations – in particular look at 2008/2009 and again in 2020 where the spread has ranged from 1.8% to 2.7% – well above historic levels.
Comment
The FF rate affects the lending rate for credit cards, auto loans, adjustable rate mortgages, all of which are impacted by banks’ Prime Rates, which move with the FF rate. Fixed Rate Mortgages – the typical 30-year mortgage – have a longer life and their benchmark is the closest Treasury security, which is the 10T. Conventional mortgages are bundled and sold to investors, who require a risk premium – higher yield – over that offered by 10T.
As can be seen, that premium – spread – has been remarkable constant over recent years. It does fluctuate from time to time as the yield on 10T tends to move quickly at times – as we have seen this year – but in recent years it always comes back to around that 1.7% level.
Here are a few thoughts about the current situation:
1. While the economy has recovered many of the jobs lost during the early days of COVID-19, continuing unemployment claims are still a huge 17 million – and parts of the country are shutting down again.
2. It will not be known for some time how many business will not reopen or how many furloughed workers will face unemployment when their employers go out of business.
3. The country faces a consistent demand that it is time to do more than talk about the racism that still exists in so many ways. It is encouraging that so many major corporations have spoken our in recent weeks about the plans they are making to contribute to – and lead the way to – a more just society, And major groups in non-business areas are also speaking up.
Mortgage rates
As the last table showed, whereas over time the spread between FRM and 10T has been consistent in the 1.7% range, there have been wide variations in the short-term. We saw that in 2008 and 2009, a time of great economic duress when widespread buying of US Treasuries as a safe haven drove yields down and spreads widened. Those spreads returned to the norm as economic conditions improved.
The current economic situation is very different from the Great Recession. Indeed, but for COVID-19 the strength of the economy earlier in the year would have lead to expectations that the Fed would be increasing rates, rather than the dramatic cuts we saw.
Another factor is the demand for mortgage-backed securities (MBS), the bundles of mortgages sold to investors. In the Great Recession, investors were wary about the value of the underlying security – residential mortgages – and so demanded a larger premium.
Part of the reason that mortgage rates spiked initially in March was that investors stopped buying MBS as they were uncertain about the impact forbearance plans would have on mortgage interest payments. The MBS market recovered when the Fed stepped in as a buyer, but the uncertainties remain, leaving the Fed as the largest buyer of MBS.
In normal times I tell people to add 1.7% to the 10T yield to get an idea of where the FRM should be. But in 2008/09 and again in 2020 that formula was thrown off by extraordinary events, whether it be the Great Recession or COVID-19.
We are seeing signs of market stabilization with the spread between FRM and 10T dropping from a high of 2.72% to the current 2.36%, but it is still well above “normal” levels.
We are not going to see mortgage rates fall into line with the 10T + 1.7% formula (implying a FRM of 2.3%) again soon, because in times of economic stress the formula changes slightly to 10T +1.7% + a risk premium. Ideally, the spread would narrow as a result of rising yields on 10T as that would suggest that the economy is growing again. But there are too many unknowns to be able to guess when that may occur.
What we have seen is the start of a move, which may well be a longer-term trend, of people moving out of cities into the suburbs into larger houses with more open space around them (see article below). This is adding demand (from people selling higher-priced properties so more willing possibly to pay up) to a market suffering – in Essex County – from a 40% reduction in inventory compared with a year ago – when inventory was low anyway.
Goodbye Boston, Hello Marblehead
Accepted Offers held back by shortage of inventory
Are mortgage rates headed to 3%?
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
www.TeamHarborside.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rates drop below 3%
Just over a year ago I published Are mortgage rates headed to 3%?.
Well, this week they dipped below 3%:
Will rates go even lower?
Maybe. I have written many times that the 30-year Fixed Rate Mortgage (FRM) has averaged a spread of about 1.7% above the yield on the US 10-year Treasury (10T). With 10T yielding 0.62% that would imply a normalised FRM of 2.32%. But, as you may have noticed, these are not normal times.
I will publish a fuller article tomorrow showing the historical links between FRM and 10T – and the other occasions when the spread has widened considerably.
Goodbye Boston, Hello Marblehead
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rates hit yet another record low
“Mortgage demand got a lift from another big drop in mortgage rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 decreased to 3.19% from 3.26%. Points, including the origination fee, decreased to 0.33 from 0.35 for loans with a 20% down payment.
Applications to refinance a home loan, which are most sensitive to weekly rate moves, jumped 12% for the week and were 107% higher than a year ago. The refinance share of mortgage activity increased to 64.2% of total applications from 60.1% the previous week. Record low rates caused Fannie Mae to improve its housing outlook for the second half of this year.(CNBC)
“The continued decline in mortgage rates pushed up our refinance volume forecast by about $100 billion,.” said Doug Duncan, Fannie Mae’s chief economist. “At the current mortgage rate, we estimate that nearly 60% of all outstanding loan balances have at least a half-percentage point incentive to refinance.”
The biggest hurdles to homebuying today are lack of supply and rising prices, especially on the lower end of the market. The nation’s homebuilders are benefiting from that. Mortgage applications to purchase a newly built home were up over 50% in June annually. Builders, however, are struggling to keep up with the new demand, especially since they basically shut down their operations in March and April. (CNBC),
As I mentioned with last week’s release, buyers in our area with good credit and a minimum 20% deposit can find 30-year rates at or even a little under 3%. And 15-year rates as low as 2.5%.
Please call if you would like an introduction to a bank offering these low rates.
Inventory chronically low; demand booming
Goodbye Boston, Hello Marblehead
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Homebuyer mortgage demand spikes 33% as rates set another record low
“Mortgage applications to purchase a home rose 5% for the week and were a remarkable 33% higher than a year ago, according to the Mortgage Bankers Association’s index, which was seasonally adjusted, including for the Fourth of July holiday.
Buyer demand has been incredibly strong since mid-May, after the coronavirus shut down most housing activity in April. The only thing standing in the way of more sales is the record low supply of homes for sale.
Home prices gains continue to accelerate, so low mortgage rates are giving buyers much-needed help. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $510,400 dropped to 3.26% from 3.29%. Points, including the origination fee, for loans with a 20% down payment decreased to 0.35 from 0.36.”
“Mortgage rates declined to another record low as renewed fears of a coronavirus resurgence offset the impacts from a week of mostly positive economic data, such as June factory orders and payroll employment,” said Joel Kan, an MBA economist. “The average purchase loan size increased to $365,700 — also another high — as borrowers contend with limited supply and higher home prices.” (CNBC).
While this report states the average contract interest rate last week, nationally, was 3.26%, buyers with good credit and a 20% down payment can now find mortgages at or even a little under 3%.
Goodbye Boston, Hello Marblehead
Inventory chronically low; demand booming
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Homebuyer mortgage demand spikes to 11-year high
Mortgage applications to purchase a home rose 4% last week from the previous week and were a remarkable 21% higher than one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. That was the ninth consecutive week of gains and the highest volume in more than 11 years.
“The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence,” said MBA economist Joel Kan.
Goodbye Boston, Hello Marblehead
Accepted Offers top year ago number
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage applications increase again
Mortgage applications increased 9.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 5, 2020. The previous week’s results included an adjustment for the Memorial Day holiday.
The Market Composite Index, a measure of mortgage loan application volume, increased 9.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 20 percent compared with the previous week. The Refinance Index increased 11 percent from the previous week and was 80 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 5 percent from one week earlier. The unadjusted Purchase Index increased 15 percent compared with the previous week and was 13 percent higher than the same week one year ago.
“Fueled again by low mortgage rates, pent-up demand from earlier this spring, and states reopening across the country, purchase mortgage applications and refinances both increased. The recovery in the purchase market continues to gain steam, with the seasonally adjusted index rising to its highest level since January. Purchase activity increased for the eighth straight week and was a notable 13 percent higher than a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Refinances moved higher for the first time in nearly two months, with both conventional and government applications rising and the overall index coming in 80 percent above year-ago levels.”
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Goodbye Boston, Hello Marblehead
Mortgage rate head fake
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rate head fake
Well, that rally in mortgage rates didn’t last long! After last Friday’s startling jobs report which led to this article Mortgage rates are rising – and that’s good news and caused a jump in mortgage rates of about 1/8/1/4% on the day, this week saw a very different set of economic numbers and tone to markets.
Consequently, while the Freddie Mac national weekly average, announced on Thursday and based on rates on Monday-Wednesday,saw a small increase from 3.15% to 3.18%, by the end of the week the 30-year Fixed Rate Mortgage (FRM) was hovering closer to 3% again – and on Thursday some lucky buyers were able to get mortgages under 3%.
I don’t want to get bogged down in nitty-gritty when the result is a minor fluctuation. I have written many times in recent weeks that I plan to ignore all economic statistics and forecasts because (a) the numbers, especially in April but for the whole second quarter, are going to be awful, but we are not surprised since the economy, domestically and internationally, was largely shut down, and (b) because all forecasts for the future have so many qualifiers (assuming this, assuming that, etc).
What happened this week?
Unless you took a SpaceX trip to another planet, it has been almost impossible to miss all the drama. On the issue of racism in this country, all I want to say in this forum is that I am very, very optimistic that the movement towards equality has a momentum that I hope and pray is unstoppable. Both the NFL and NASCAR have made dramatic moves, while corporation after corporation has been detailing the plans they have in place to put a rocket to their commitment to speed equality. Now it is up to all of us to keep the pressure on.
Economically….the weekly unemployment figures in Thursday seemed in contrast to the jobs number last week. Tempting though it is to revert to my “ignore them all” philosophy, it may be time as the economy starts to reopen to pay more attention. Two numbers stood out in Thursday’s report: continuing unemployment numbers of almost 21 million and nearly 30 million including those filing for Pandemic Unemployment Assistance benefits.
Nobody knows how many furloughed jobs will be lost as – and if – businesses reopen, or how many small business have only kept going because of funding from the Payroll Protection Program.
So I guess I am back to “we don’t know”. And it is important to differentiate between a stock market on a sugar high from all the liquidity being pumped into the economy by the Federal Reserve and the hardship already being suffered by many now and likely in the future.
And did somebody say rising COVID-19 cases? From CNBC: The rise in coronavirus cases seen in about half a dozen states across the U.S. isn’t the feared “second wave” — it’s still the first, scientists and infectious disease specialists say.
Back to mortgage rates. This is the only chart that matters, showing how cheap mortgage rates are by historic standards:
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage rates are rising – and that’s good news
The difficulty in forecasting in these extraordinary times was demonstrated on Friday when the latest employment report showed an increase of 2.5 million jobs versus the forecast of a decline of 7.5 million – a 10 million difference! As HSH.com said in its weekly report: “Months and years from now, it will probably become very clear that April 2020 was the absolute depth of the COVID-19 pandemic recession. That’s not to say that we’ve moved to a place of recovery, or that nascent “green shoots” are necessarily a harbinger of a swift return to a fully-fledged economy; we haven’t, and they’re not. However, it could be said that we’re starting to move to a less-deep place of recession and that important signals about an eventual return to growth are starting to be seen.”
The vast amount of liquidity the Federal reserve has pumped into the economy continues to fuel a booming stock market and Friday’s report produced another 3% gain. The S&P 500 is now down just 1% for the year (after falling 30% earlier), while the NASDAQ, which fell 25% earlier, is not up 9% for the year.
The Fed has rescued the market again.
What does this mean for mortgage rates?
First, I will explain the link – or lack of link – between FF and FRM – and what actually drives mortgage rates. This is easier than predicting what will happen going forward, but for what it is worth I offer some thoughts at the end of this piece.
Five charts explain the factors driving mortgage rates. In all cases the numbers are at the dates that the Fed has changed its FF over the last 4 years: 10 increases, followed by four decreases.
Fed Funds rate (FF)
The Fed Fund rate is the rate at which banks lend to each other overnight.
After increasing from 0% to 2.5% since late 2015, cuts in 2019 and 2020 have lowered the rate back down to 0.25%, following the dramatic and proactive cuts in March.
30-year Fixed Rate Mortgage (FRM)
The FRM reached nearly 5% in late 2018 and dropped to an all-time low of 3.15% in late May.
10-year Treasury yield (10T)
The yield on the 10T is influenced by two major factors: the outlook for the economy (expanding businesses invest creating demand for money) and geopolitical events – the US dollar and US Treasuries are seen as a safe haven during times of uncertainty.
The yield reached 3.2% in November, 2018 (which was the time of the peak in the FRM), eased back under 2% in 2019 and then plummeted from 1.88% in early 2020 to just 0.58% in late April. It stayed in the 0.6-0.7% % range until this week, when the yield increased to Friday’ 0.91% following the employent report.
The spread, or difference, between FRM and FF
If there were a link between FF and FRM it would show up in this chart. In fact, the spread dropped from 3.7% in 2015 to 1.5% in 2019 before increasing to 3.0% recently, demonstrating that there is no direct link between FF and FRM
The spread, or difference, between FRM and 10T
We see more consistency between FRM and 10T, where the spread was in a much tighter range of 1.5% to 1.8% until the second half of 2019 and into 2020.
Indeed, over the last several years the spread between FRM and 10T has been very stable averaging around 1.7%. But I would point out two things in this table: first, the spread widened significantly in the Great Recession in 2008; and, secondly, while the median spread for the year has been in a narrow range, within the years there have been quite wide variations – in particular look at 2008/2009 and again in 2020 where the spread has ranged from 1.8% to 2.7% – well above historic levels.
Comment
The FF rate affects the lending rate for credit cards, auto loans, adjustable rate mortgages, all of which are impacted by banks’ Prime Rates, which moves with the FF rate. Fixed Rate Mortgages – the typical 30-year mortgage – have a longer life and their benchmark is the closest Treasury security, which is the 10T. Conventional mortgages are bundled and sold to investors, who require a risk premium – higher yield – over that offered by 10T.
As can be seen, that premium – spread – has been remarkable constant over recent years. It does fluctuate from time to time as the yield on 10T tends to move quickly at times – as we have seen this year – but in recent years it always comes back to around that 1.7% level.
Here are a few thoughts about the current situation:
1. As HSH has pointed out, April 2020 will likely be seen as the nadir of the COVID-19 recession and the depth and speed of the plunge mean that comparing numbers from the absolute lows will show big percentage increases – but the absolute levels will look bad for some time to come. For example, the employment numbers showed 10 million more jobs than forecast – but the unemployment rate was still over 13% and was nearly 17% for African American workers.
2. It will not be known for some time how many business will not reopen or how many furloughed workers will face unemployment when their employers go out of business.
3. The country faces a consistent demand that it is time to do more than talk about the racism that still exists in so many ways. It is encouraging that so many major corporations have spoken our in recent weeks about the plans they are making to contribute to – and lead the way to – a more just society, And major groups in non-business areas are also speaking up and out – witness the NFL this week.
Mortgage rates
As the last table showed, whereas over time the spread between FRM and 10T has been consistent in the 1.7% range, there have been wide variations in the short-term. We saw that in 2008 and 2009, a time of great economic duress when widespread buying of US Treasuries as a safe haven drove yields down and spreads widened. Those spreads returned to the norm as economic conditions improved.
The current economic situation is very different from the Great Recession. Indeed, but for COVID-19 the strength of the economy earlier in the year would have lead to expectations that the Fed would be increasing rates, rather than the dramatic cuts we saw.
Another factor is the demand for mortgage-backed securities (MBS), the bundles of mortgages sold to investors. In the Great Recession, investors were wary about the value of the underlying security – residential mortgages – and so demanded a larger premium.
Part of the reason that mortgage rates spiked initially in March was that investors stopped buying MBS as they were uncertain about the impact forbearance plans would have on mortgage interest payments. The MBS market recovered when the Fed stepped in as a buyer, but the uncertainties remain, leaving the Fed as the largest buyer of MBS.
In normal times I tell people to add 1.7% to the 10T yield to get an idea of where the FRM should be. But in 2008/09 and again in 2020 that formula is thrown off by extraordinary events whether it be the Great Recession or COVID-19.
The reason that the rise in interest rates this week is good news is that it is an indication that markets are at least starting to return to normal. We are not going to see mortgage rates fall into line with the 10T + 1.7% formula (implying a FRM of 2.6%) because in times of economic stress the formula changes slightly to 10T +1.7% + a risk premium.
What we have seen is the start of a move, which may well be a longer-term trend, of people moving out of cities into the suburbs into larger houses with more open space around them (see artilce below). This is adding demand (from people selling higher-priced properties so more willing possibly to pay up) to a market suffering – in Essex County – from a 40% reduction in inventory compared with a year ago – when inventory was low anyway.
In summary, I would say that FRM rates in the 3 1/4% range may well be the low point in this cycle. And that is an extrmeley attractive rate.
Goodbye Boston, Hello Marblehead
Accepted Offers held back by shortage of inventory
Are mortgage rates headed to 3%?
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
www.TeamHarborside.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage applications jump 18%
Mortgage applications to purchase a home rose 5% for the week and were 18% higher than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. As the coronavirus outbreak was surging six weeks ago, applications by homebuyers were down 35% annually.
“The pent-up demand from homebuyers returning to the market continues to support a recovery from the weekly declines observed earlier this spring,” said Joel Kan, an MBA economist. “However, there are still many households affected by the widespread job losses and current economic downturn. High unemployment and low housing supply may restrain a more meaningful rebound in purchase applications in the coming months.”
Locally, we are seeing strong demand at a time when inventory is extremely low as reported in my latest post Inventory plummets while demand increases .
This is the inventory as of June 1:
Goodbye Boston, Hello Marblehead
Mortgage rates hit all-time low – again
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage Rates hit all-time low – again
“The 30-year fixed-rate mortgage has again hit the lowest level in our survey’s nearly 50-year history, breaking the record for the third time in just the last few months. These unprecedented rates have certainly made an impact as purchase demand rebounded from a 35 percent year-over-year decline in mid-April to an 8 percent increase as of last week—a remarkable turnaround given the sharp contraction in economic activity.
Additionally, refinance activity remains elevated and low mortgage rates have been accompanied by a $70,000 decline in the average loan size of refinance borrowers this year. This means a broader base of borrowers are taking advantage of the record low rate environment, which will benefit the economy.” (Freddie Mac weekly survey.)
Comment
Remember late March when the 30-year Fixed Rate Mortgage jumped more than 1% in one day when the financial markets were in disarray? The multiple actions taken by the Federal Reserve have created both liquidity and confidence and the impact has been dramatic in both the stock market and the conventional mortgage market.
Mortgage applications spike
Mortgage applications almost back to 2019 levels
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.”
Mortgage applications spike
U.S. applications for home mortgages jumped last week, in a sixth straight weekly increase, suggesting the housing market could lead the economy’s recovery from the novel coronavirus crisis even as high unemployment is expected to linger.
The Mortgage Bankers Association (MBA) said on Wednesday its seasonally adjusted Purchase Index increased 8.6% from a week earlier. On an unadjusted basis, the index rose 7.4% from the prior week and was 9% higher compared to the same week a year ago. It was the sixth consecutive weekly gain and a 54% surge since early April.
“The home purchase market continued its path to recovery as various States reopen, leading to more buyers resuming their home search,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “The purchase loan amount has increased steadily in recent weeks and is now at its highest level since mid-March.” (Reuters).
This national news confirms the trends reported in my latest report Accepted Offers remain high despite low Inventory .
For the last three years the inventory of SFHs for sale in Essex County has been quite stable. That is about to change as these are the numbers with a few days left until June 1:
Goodbye Boston, Hello Marblehead
Accepted Offers remain high despite low Inventory
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Sale, Beverly, Lynn and Swampscott.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Mortgage applications almost back to 2019 levels
Mortgage applications to purchase a home rose 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase volume was just 1.5% lower than a year ago, a rather stunning recovery from just six weeks ago, when purchase volume was down 35% annually.
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
[email protected]
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
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