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Are Mortgage Rates really under 3%?

November 13, 2021 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

When Freddie Mac released its weekly mortgage survey on Thursday it did so with the heading: “Mortgage Rates Drop Below Three Percent Again.”

Which they are not now.

The problem lies with the methodology. Freddie Mac surveys lenders from Monday to Wednesday with the major weighting given to Monday’s rates. As I have explained in many postings over the years (see Mortgage Rates back to 3% – again as an example), the 30-year Fixed Rate Mortgage (FRM) is priced based upon a premium that investors, when they buy pools of mortgages, demand over the yield on the nearest-equivalent US Treasury – which is the 10-year Note (10T). Thus, if the yield on 10T increases from Monday to Thursday – as it did this week – by the time of Thursday’s announcement the FRM may have changed – as it did this week.

Mortgage News Daily had a great article this week and I am going to use their charts. I recommend signing up for their newsletter, a source of great information and opinion. (more…)

Mortgage Rates back to 3% – again

October 2, 2021 · by Andrew Oliver · in Latest News, Mortgage and Finance News

The 30-year Fixed Rate Mortgage ticked back up to 3% this week. I re-read Are Mortgage Rates headed Up or Down? which I published in June and I still think it summarises the situation quite well. Hence I have included the link rather than repeating the arguments.

The proximate cause  for the increase in mortgage rates this week was the increase in the yield on the US Treasury 10-year Note. The increase started last week (after the Freddie Mac weekly survey, which is collected from Monday-Wednesday) when the Federal Reserve (Fed) confirmed that, if current trends continue, it will start to reduce its purchases of both Treasuries and Mortgage Backed Securities (MBS) soon and aim to end purchases by the middle of 2022.

At the same time, we saw a rate increase in Norway – the first in Europe- following earlier increases in Brazil and South Korea. And while the Fed continues to state that it will not consider actual rate increases (I am not sure why they refer to it as “lift off”- sounds like rocket-speed increases which it will not be) until after the end of the bond purchases, investors noticed a shift in the number of members forecasting a rate increase in 2022 rather than 2023.

And inflation continues to run hot. The Fed thinks this is transitory, but many others fear that it will be sustained forcing the Fed to raise rates sooner than it currently anticipates.

The Numbers (more…)

Adjustable-Rate Mortgages Staging a Comeback

July 11, 2021 · by Andrew Oliver · in Market Reports

Applications for Adjustable-rate mortgages (ARMs) increased 12.5% year-to-year for the week ending June 18, according to the Mortgage Bankers Association (MBA), as the discount from the 30-year FRM has widened in recent weeks.

ARMs dropped in popularity after the 2008 financial crisis, but they are starting to reemerge as buyers contend with record high home prices. “The epic surge in home prices has people looking to save money on monthly payments anywhere they can,” says Matt Graham, chief of operations at Mortgage News Daily.

Source: Freddie Mac

(more…)

Are mortgage rates heading up or down?

June 23, 2021 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

For several years “experts” have been forecasting that mortgage rates were about to rise, but forecasts of an imminent end to low rates are reminiscent of Mark Twain’s alleged comment that reports of his death had been greatly exaggerated.

The 30-year Fixed Rate Mortgage (FRM) reached almost 5% in November 2018, but since then has been in an almost uninterrupted downward trend, with a few short-lived spikes upwards:

Mortgage rates

Which brings us to the question: is the next move going to be

Mortgage rates

Inflation (more…)

June Housing Inventory: same old same old

June 2, 2021 · by Andrew Oliver · in Latest News, Marblehead News, Mortgage and Finance News, National News

Housing inventory for the 34 cities and towns of Essex County in pictures:

Single Family Homes
Housing Inventory

Condos
Housing inventory

Mortgage rates
After moving up for several weeks the 30-year Fixed rate Mortgage dropped blow 3% again. Note how cheap 15-year mortgages are for those who can afford the extra payment.

Mortgage rates

Comment (more…)

Hello sub 3% mortgages – again

April 24, 2021 · by Andrew Oliver · in Latest News, Mortgage and Finance News

This week’s drop below 3% – again – reminded me that the only one thing more fraught than commenting on mortgage rates is trying to predict where rates are headed. (see below for some of my posts about mortgage rates.)
After rising steadily from 2.65% at the beginning of the year to 3.18% by the end of March, the 30-year Fixed Rate Mortgage (FRM) has backed off again and this week the rate dropped back under 3%.

Mortgage rates
Freddie Mac weekly survey

(more…)

“Party on, dude” says the Federal Reserve

March 21, 2021 · by Andrew Oliver · in Latest News, Mortgage and Finance News

Former Federal Reserve Chair William McChesney Martin, Jr famously said: “The Federal Reserve…is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”

This week, current Fed Chair Jerome Powell in effect said “party on, dude.” As the New York Times commented: “The official view of the central bank’s leaders now is that it has been an overly stingy host, taking away the punch bowl so quickly that parties were dreary, disappointing affairs.
The job now is to persuade the world that it really will leave the punch bowl out long enough, and spiked adequately — that it will be a party worth attending. They insist punch bowl removal will be based on actual realized inebriation of the guests, not on forecasts of potential future problematic levels of drunkenness.”

Chairman Powell’s comments
“We will continue to provide the economy the support that it needs for as long as it takes.”
“We’re not going to act pre-emptively based on forecasts for the most part, and we’re going to wait to see actual data. And I think it will take people time to adjust to that, and the only way we can really build the credibility of that is by doing it.”
“People start businesses, they reopen restaurants, the airlines will be flying again — all of those things will happen, and it will turn out to be a one-time bulge in prices, but it won’t change inflation going forward.”

Interest rates and inflation
The big questions overhanging financial markets are what will happen to inflation and to interest rates.
(more…)

Mortgage Markets Return to Normal

December 6, 2020 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

Before delving into the details, let me show you the answer, the chart showing the spread – difference- between the 30-year Fixed Rate Mortgage (FRM), as reported weekly by Freddie Mac, and the yield on the 10-year US Treasury Note (10T):

Mortgage rates

In recent 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). (more…)

Mortgage Rates: Another new low

November 22, 2020 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

As if in response to my questioning whether mortgage rates were about to rise in  Mortgage Rates: another Head Fake or Early Warning? the 30-year Fixed Rate Mortgage (FRM) as reported by Freddie Mac dropped to yet another new low this week of just 2.72%.

This is the moment when you turn to a friend or family member – probably the latter at the moment – and say “when I bought my house in 19xx the rate was – fill in the blank, 7%,8% or whatever.” My highest was 7.3% in 1999. (more…)

Mortgage Rates: another Head Fake or Early Warning?

November 14, 2020 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

Back in June I wrote Mortgage rate head fake, when mortgage rates jumped but only very briefly.

On Wednesday this week I wrote: “In normal times, the 30-year Fixed Rate Mortgage (FRM) is priced based upon the extra yield investors require over and above that which can be received on the US 10-year Treasury Note (10T). In recent years that extra yield – spread – has averaged 1.7%.

2020, as you may have noticed, has not been normal. In the peak of the disruption to mortgage markets in April the spread reached 2.7%, as the yield on 10T was driven sharply lower, dropping from 1.8% at the beginning of the year to as low as 0.55%.

But recently, the yield has been climbing and now approaches 1%.  And the spread over 10T has been under 2% for the last three weeks.”

Here is a chart of the spread in recent years and by quarter in 2020: (more…)

Are Mortgage Rates about to rise?

November 11, 2020 · by Andrew Oliver · in Mortgage and Finance News

In normal times, the 30-year Fixed Rate Mortgage (FRM) is priced based upon the extra yield investors require over and above that which can be received on the US 10-year Treasury Note (10T). In recent years that extra yield – spread – has averaged 1.7%.

2020, as you may have noticed, has not been normal. In the peak of the disruption to mortgage markets in April the spread reached 2.7%, as the yield on 10T was driven sharply lower, dropping from 1.8% at the beginning of the year to as low as 0.55%.

But recently, the yield has been climbing and now approaches 1%.  And the spread over 10T has been under 2% for the last three weeks. (more…)

Mortgage rates steady at 3%

August 5, 2020 · by Andrew Oliver · in Mortgage and Finance News

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

July 29, 2020 · by Andrew Oliver · in Mortgage and Finance News

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

Mortgage rates dip below 3% – where to next?

July 19, 2020 · by Andrew Oliver · in Market Reports, Mortgage and Finance News

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.

Fed Funds

 

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.

Mortgage rates

 

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.

Mortgage rates

 

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

 

Mortgage rates

 

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.

Mortgage rates

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%

July 18, 2020 · by Andrew Oliver · in Mortgage and Finance News

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

 

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