Mortgage rates still heading lower
I last wrote on mortgage rates in February in a report titled What happened to 4% mortgages? That article started with these words: On the way to the “inevitable” increase in mortgage rates this year, a funny thing has happened – they have gone down again, raising the question: what happened to 4% mortgage rates?
Where are rates now?
Here are this week’s rates, with the 30 year fixed rate mortgage (FRM) at a new 3 year low:
Source: Freddie Mac Weekly Survey
What are the “experts” forecasting?
The Mortgage Bankers Association (MBA) has been forecasting for the last 2-3 years that mortgage rates would soon increase to 5% or more.
In November 2013 the MBA forecast mortgage rates “to rise to 5.1% in 2014”. Actually, the 30-year Fixed Rate Mortgage (FRM) was 4.0% at the end of 2014.
Undaunted, in December 2014 the MBA again forecast a rise to 5.1% by the end of 2015, and once again the actual FRM was 4.0% at the end of 2015.
By January 2016 the MBA had become a little more cautious and forecast an increase to just 4.6% by the end of 2016, but to 5.2% by the end of 2017.
And now in May, those forecasts have dropped to 4.1% by the end of 2015 and 4.8% by 2017.
Why are the “experts” so wrong?
The FRM is based, not on short-term interest rates over which the Federal Reserve has influence, but on the yield on the 10 year US Treasury (10T), whose price is influenced by a number of factors, notably the anticipated strength of the economy, yields compared with other countries, and geopolitical developments around the world.
When the Fed increased short-term rates last December, the yield on the 10T was 2.25%. On Friday it closed at 1.71%, a change of more than half a per cent. In the same period,the FRM has dropped 0.4%.
The reason the MBA keeps getting the forecast for the FRM so wrong is that it keeps forecasting that the yield on the 10T is going to increase. Its latest FRM forecast assumes a 10T yield of 2.2% by the end of 2016 and 2.9% by the end of 2017. These forecast rates have dropped from 2.7% and 3.3% just since January.
But it is not just the MBA that gets interest rates wrong. The Fed was so concerned about being “transparent” and explaining, ad nauseam, its thinking on interest rates in order not to “surprise” the market, that it missed the opportunity to raise rates when the US economy was strong and did so just as it became apparent that the continued weakness in the rest of the world was leading to lower interest rates elsewhere, not higher.
Interest rates have long been higher in the US than in most of the rest of the world, leading to demand for US Treasuries from overseas and causing the dollar to strengthen dramatically.
In my comment on the Fed’s increase in December I wrote: “If commodity prices remain weak, there will be a significant deflationary impact felt in several countries; China’s slowdown could continue to be a drag; and of course there is always the risk of a major war or confrontation.The US economy is doing quite well, but will not be immune to what is happening elsewhere in the world.”
Where are mortgage rates headed?
As I have pointed out, the “experts” have been consistently wrong, so their “forecasts” have really become guesses.
The chart below shows the spread – the difference between the rates – on the FRM and 10T. For the last three years this has averaged 1.67% and been pretty consistent: 2013 and 2014, 1.66%, 2015 1.70%. Today the spread is 1.82%, a little higher than the last few years.
Source: US Treasury, Freddie Mac
Summary
While the US economy is stronger than those of most of other countries, it is growing at only a moderate 2 – 2.5% per annum. Elsewhere there are many headwinds, which make it hard – at least for this observer – to see the basis for interest rate increases in the near future.
Trying to guess the bottom in mortgage rates is like trying to time investment in the stock market – great fun, but rarely successful.
What we can say is that mortgage rates today are extremely low by historic standards and to some extent are offsetting home price increases in the last few years.
If you are considering selling your home please contact me on 617.834.8205 or [email protected] for a free market analysis and explanation of the outstanding marketing program I offer.
Read Which broker should I choose to sell my house?
If you are looking to buy, I will contact you immediately when a house that meets your needs is available. In this market you need to have somebody looking after your interests.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. Each Office Is Independently Owned and Operated
@OliverReports
What happened to 4% mortgages?
On the way to the “inevitable” increase in mortgage rates this year, a funny thing has happened – they have gone down again, raising the question: what happened to 4% mortgage rates?
Where are rates now?
Here are this week’s rates:
Source: Freddie Mac Weekly Survey (more…)
Why you understand mortgage rates better than many commentators do
Just over a week ago the Federal Reserve increased short-term interest rates and I explained in What the Fed’s rate increase mean for mortgage rates that the 30-year fixed rate mortgage rate was not affected by the Fed Funds rate but by the yield on the US 10 year Treasury.
If you read my article and were a journalist you would not have written articles I saw this week with headlines such as “Defying Fed hike, 30-year mortgage rate slips” or “30-year mortgage rate drops in spite of Fed hike”. (more…)
What the Fed’s rate increase means for mortgage rates
For the first time since before the introduction of the iPhone the Federal Reserve (Fed) members voted to increase the target rate for federal funds (FF). The increase is 1/4% and was widely expected. What does this mean for mortgage rates? The key is to understand which rates are impacted by the Fed Funds rate and which are dependent upon interest rates set by the market.
Which rates are based upon the Fed Funds rate?
30 year fixed rate mortgages (FRN) are not based on the FF rate, but are most closely tied to the yield on 10 year US Treasuries(10T). More on that in a minute. (more…)
Is this the end of mortgages under 4%?
The “will they won’t they” saga of when the Federal Reserve will increase interest rates took another yesterday as the jobs report saw with 271,000 new jobs added, a decrease in the official unemployment rate to a flat 5 percent, and a pick up in wage growth to an annualized rate of 2.5 percent, the fastest pace in about 6 years. The yield on the 10 year Treasury (the bench mark for 30 year Fixed Rate Mortgages – FRM) jumped to 2.34%, bringing speculation that we could be about to see the end of mortgages under 4%. (more…)
Play Snakes and Ladders with the Federal Reserve
The debate over when the Bank of England and the Federal Reserve will raise interest rates has been running for a very, very long time now.
So economists at Bloomberg Intelligence have managed to make it fun again. With the specific timing depending on a host of moving parts in the economy – wage growth, inflation and unemployment – they reckon those factors will direct policy makers like counters on a snakes and ladders board game.
And so they have created a Snakes and Ladders game and invite readers to “roll the dice”. (more…)
Mortgage rates likely to remain below 4%
I read US inflation better than forecast , written by a distinguished foreign currency analyst, with some surprise. For most of us who are “ripe in years” the challenge for most of our lives has been to prevent inflation from growing too rapidly. But now, the challenge through most of the world is to encourage inflation, which is deemed to be too low. Thus “better than forecast” on inflation now means a higher rate than expected.
What’s all this doing on a real estate blog, you may be asking. The answer, of course, is that mortgage rates are based on the yield on 10 year Treasuries, and those in turn reflect the expectation for interest rates, which are influenced by expectations for economic growth and inflation.
Higher economic growth normally leads to higher prices (inflation) because it becomes easier to pass on price increases. This economic recovery, such as it has been, has taken place to a background of falling commodity prices and little or no growth in wages because of high levels of unemployment or underemployment. And many countries have tried to encourage inflation by adopting a policy of easy and cheap finance.
Commentators – and the Federal Reserve itself – talk of the desire to return to “normalized” interest rates, but this ignores the question of whether the norm has changed. I am in the camp which believes that it has.
And we now learn that the San Francisco Fed, home of Fed Chair Janet Yellen, in a recent paper has suggested that the natural rate of interest rates may currently be negative, which in turn suggests that our ultra low rates may not actually be stimulative at all.
“Monetary conditions remain relatively tight despite the near-zero federal funds rate, which in turn is keeping economic activity below potential and inflation below target,” writes economist Vasco Curdia.
The insight centers around the concept of a natural rate of interest. This is the hypothetical interest rate at which money would be lent and borrowed in equilibrium, leading the economy to neither grow nor shrink. If actual interest rates are above this natural (or neutral) rate, then less money will be lent out than otherwise might be, leading economic growth to slow. Conversely, if actual interest rates are below this neutral rate, then economic expansion should result.
Source: FRBSF
And according to Curdia, the neutral rate is currently below zero. Actually, he says it is currently at negative 2.1 percent, in contrast to a long-run level of 2.1 percent. If he’s correct, the direct implication is that right now, even a federal funds rate target of 0 percent to 0.25 percent is high enough to slow down the economy rather than contribute to expansion.
And with 4 Fed Members talking this week of not raising rates soon, the outlook is that mortgage rates will remain below 4% for the forseeable future.
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].
Read Which broker should sell my home?
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty. 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
Mortgage rates: déjà vu all over again
Well the Federal Reserve did not increase short-term interest rates this week and there was little movement in mortgage rates, which remain under 4% for the 30 year fixed rate (FRM) and close to historic lows:
The underlying assumption behind the Fed’s forecasts and those by groups such as the Mortgage Bankers Association (MBA) is that there will, inevitably, be an increase in inflation at some point and that interest rates will start to rise as that becomes more certain.
How accurate have past forecasts been? (more…)
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…)
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 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…)
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