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…)
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
Mortgage Rates drop to 3.66%
The 30-year national average mortgage rate, as reported by Freddie Mac, started 2014 at 4.5% with forecasts that by year end the rate would reach over 5%. For a number of reasons, which I will go into again more fully in my post this coming Saturday, the rate in January 2014 was the highest for the year and ended 2014 at 3.87%.
This year the slide has continued with the rate reaching 3.66% this week, the lowest level since May 2013 and not far from the record low of 3.31%. The decline in rates seems likely to trigger renewed buying interest and may shorten the traditionally quiet winter market.
Source: Freddie Mac
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
The outlook for mortgage rates in 2015
Fannie Mae this week cut its forecast for the average mortgage rate for 2015 from 4.5% to 4.3%, which compares with the current national average of around 4.1%.
It is worth bearing in mind that a year ago the Mortgage Bankers Association (MBA) forecast that the 30 year mortgage rate would reach 5.1% by the end of this year.
That, of course is one of the biggest problem with forecasts – they have to be made about the future, which contains so much uncertainty. If only we could just stick to making “forecasts” about the past, life would be so much easier! (more…)
Mortgage Rates: what happened to 5%?
As we head into the Fall selling season it is worth pausing to reflect on where mortgage rates stand and what the outlook is. Well the second is easy: we don’t know with any confidence. What we do know is that forecasts of rates hitting 5% or more this year have proved pessimistic despite the improving US economy. (more…)
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