Mortgage interest rates have never -- seriously never -- been lower than they were this year. Right around the second week of November, interest rates on a 30-year-fixed rate loan dropped to 4.17%, according to Fannie Mae -- by all accounts, the lowest they've ever been in the 40 years or so that industry organizations have been keeping track. That was the 5th consecutive week of record low rates -- rates that were so low, people with "good" rates started refinancing because that week's 3.57% on 15-year loans meant the payment was barely higher than the payment they'd had on their 6%, 30-year fixed mortgage.
But I digress. That November rate-drop to end all rate drops was so extreme, no one really expected it to be sustainable over the long term. Rates had puttered up and down from around 4.2% to around 4.45% for months. The job market was lagging, and the housing market had never sobered all the way up from its post-tax credit hangover, so the Fed said it would do what it could to keep rates low for the foreseeable future, so the banks would pass those low rates on to consumers.
Then, the Obama administration cut a deal to extend the Bush era tax cuts. That adds a projected $900 billion to the deficit over those two years. And that toppled the first domino: T-bill rates, many of which back federally-insured mortgages, were pushed up. As the deficit increases, so does the risk associated with investing in Treasury bills, so they need higher rates for people to buy them. When the rates on T-bills go up, so do mortgage interest rates.
And, after that uber-low week in November, mortgage rates went up faster than the numbers on my scale over the last six weeks: well over a half point since the second week of November, hitting their highest point in six months. The last Fannie Mae data reports rates at over 4.8%, which Bankrate's overnight report pegs them at 4.97%. And it's been a spiky ride, with rates jumping around from 5% to 5.19% at one point, overnight, the second week of December, before cooling to just below 5% Christmas week. Infinity Home Mortgage manager Jeffrey Belonger told Bankrate that rates are "getting worse for two days, getting better for one day, getting worse the next day." Belonger says that mortgage rates right now are on a "daily yo-yo."
The knee-jerk reaction so many homeowners have is that even 5% is still so low, relative to the rates of years past, that the difference between 4.17% and 5% should not stop anyone from buying a home, and it probably won't. But it will put a new, lower cap on how much they can spend, which will likely translate into greater price pressures on sellers. Even a half-point increase from 4.5% to 5% on a 30-year fixed rate loan adds an additional $120 per month to the mortgage payment on a $400,000 home. Today's lenders impose very firm, clear budget constraints on buyers as to how much they can afford to spend for housing, so the extra interest cost will force many buyers to downsize their home price budget.
A spiky, upward trajectory is in the cards for 2011, too -- until the deficit truly gets under control, Treasury rates will likely continue to be volatile; the Fed just bought a bunch of T-bills in November to do its part at keeping rates low, so it's unlikely it will do more in the very near future. If the deficit keeps growing and, counterintuitively, consumer spending and confidence keep on their upward paths, mortgage rates will continue to rise.
So, what's a homebuyer or owner to do? Well, homebuyers who are in contract and looking for the time to lock their rates should consult with their mortgage professionals about doing it during the holiday lull in rates, before the volatility returns as expected after New Year's Day.
Fifteen-year loans are still offering below 4% rates, as another alternative for both buyers and homeowners looking to refinance at the lowest possible rates; and the daily interest rate yo-yo means that those looking to lock loan rates should be in touch with their mortgage brokers every day to catch them when they're relatively low.
Those still house-hunting should consider negotiating for the seller to pay a discount point and reduce their interest rates, especially if they are in a situation where they have stronger bargaining power vis-a-vis the seller. The slow holiday season for home sales puts wanna-be buyers in good position to do this, particularly for homes located in cold weather states, where very few buyers are active this time of this already-slow year.
Article written by Tara-Nicholle Nelson, click here for articles by Tara.
Tuesday, December 28, 2010
Friday, December 3, 2010
Hold on Tight!!
What a ride! we talked about market volatility yesterday remaining extreme over the next week or so; today's November employment report set it up. A huge miss on estimates from analysts and economists; as we always note, trying to predict employment is difficult if not impossible. The November unemployment rates was widely expected to be unchanged, it jumped 0.2% to 9.8% the highest in months. Mortgage back securities have already been down 41 basis points…then up 62 basis points and now have retracted to only being up 32 basis points. We lost well over 100 basis points in the mortgage markets…which is a ton!!! You will see the Stock market suffer with these reports as well.
No matter how its sliced, the employment report has thrown a wet blanket over all the recent more positive economic data that had sent equity markets exploding this week and interest rates up. With job markets still soft the US economy isn't likely to sustain any substantial growth. Looking for anything positive from the data this morning, the upward revisions in October and September is about it.
Hold on tight! If you are in the market for a new mortgage, be patient, we will get a little improvement over the coming weeks, but do not get greedy as this will hurt you in the end.
If you have any questions, feel free to email me anytime, click on my name to contact me.
Thank you very much and have a great day!!!!!
Vice President
Mortgage Network
Acton MA 01720
Thursday, December 2, 2010
Do you know where rates are headed?
Mortgage rates moved more this week then they have the entire year, and of course they moved the wrong way…UP. Signs of the economy are improving, China is having a banner year, October housing numbers were far better than expected are just some of the reasons. Tomorrow the Bureau of Labor Statistics will release the Employment Situation Report. This is the single most influential monthly dataset shared with the market. It carries the potential to shift investment perspectives and realign outlooks.
It could be way better than expected and 30 year fixed mortgage rates could go into the 5's by the end of the day. It could be way worse than expected and rates might take reasonable steps back toward 4.25%. It could do either of those things and rates could be relatively unchanged. Or it could do either of those things and paradoxical opposite reactions could occur. The point here is that tomorrow is definitely NOT about how NFP prints compared to how economists expect it to print. It is all about how the market receives it and whether or not there are any other major news events being digested at the time (Europe is a continuing theme that comes to mind). What does all this mean?? It means, we will wait to see if all the economists out there speculated correctly and then we see how Wall Streets deciphers the news. Be prepared for a VOLITILE day in the markets, whether you are watching mortgage rates, the stock markets or even to see the Unemployment number of 9.6% changes one way or the other.
Remember, Good news in the economy…mortgage rates go up! Bad news in the economy, mortgage rates go down!
Bill Nickerson
179 Great Road, Acton MA 01720
978.264.4803 (o) 978.273.3227 (c)
Providing Mortgages Since 1991
Commercial Residential Reverse FHA/VA
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