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).

Here is an update on the spread between the two yields. Note that the mortgage rate did not drop as much as the Treasury yield did, because the geopolitical factors affecting the Treasury market were not such an influence in the mortgage market:

Source: US Treasury, Freddie Mac

Source: US Treasury, Freddie Mac

The actual rate depends on which survey you read. It is not clear to me why Freddie Mac’s rate is so far below that of Bankrate and HRH. I asked Freddie Mac and their response did not make sense to me. Here are extracts from the three surveys.

Bankrate reported the average 30-year mortgage at 3.90% this week, the peak for 2015, but still well below the 4.48% of a year ago. Bankrate’s rate includes points of 0.29.

According to Bankrate: “mortgage rates broke out this week after an extended period of calm, boosted by positive economic data and a surprisingly strong monthly employment report. Job growth, in particular, has surged significantly in recent months, enough to bring forward expectations of a Federal Reserve interest rate hike to as early as the June 2015 meeting. The strength of the U.S. economy, at least for this week, was enough to overshadow the concerns about slower growth in both developed and emerging markets around the globe.”

According to Freddie Mac, “mortgage rates rose this week following strong economic data”, with the 30-year fixed-rate mortgage (FRM) averaging 3.69 percent with an average 0.6 points for the week ending February 12, 2015, up from last week when it averaged 3.59 percent. A year ago at this time, the 30-year FRM averaged 4.28 percent.

HSH.com‘s broad-market mortgage tracker  found that the overall average rate for 30-year fixed-rate mortgages rose by eleven basis points this week (0.11%) to climb back to 3.90 percent, the second highest average of 2015. HSH does not disclosed the points included in its quoted rate.

HSH reported: “The combination of a pretty solid U.S. job market, a European Central Bank getting a QE-style program underway and perhaps an inkling of collective growth in the countries that make up the eurozone have allowed mortgage rates to drift higher by a meaningful amount for the first time since late October.

At this point, rates have merely erased a portion of the unexpected decline seen in January, and it is possible that all that dip may be erased in the days ahead. However, there’s no current reason to expect any huge upsurge in rates; more likely, we’re simply finding a balance point on the see-saw between recent highs and lows as markets search for clues to the path ahead.”

It can be quite confusing to try to balance what is happening in the US economy with the rest of the world, to try to understand how much or little economic growth elsewhere affects the US. I came across the following table for the G20 countries from the World Bank. I think it helps to explain why the US can have strong growth even if other countries, say in Europe, are struggling. Only in Brazil – and by a small margin – are exports a smaller percentage of GDP. While individual companies may see a larger proportion of their income from outside the US, overall domestic demand is by far the biggest driver of US economic activity.

Source: World Bank

Source: World Bank

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 Andrew.Oliver@SothebysRealty.com.

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.





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