Mortgage rates find their range

It feels as if mortgage rates have found a comfortable range to move back-and-forth in, for now. Let’s talk about mortgage rates, how they change, and why I feel as if they’ve “found a range.”

Mortgage rates may change everyday. Sometimes they may change more than once per day. Mortgage rates behave differently then other rates. For example:

• the Federal Funds Rate remains static unless it is changed by the Federal Reserve (and wow, it has changed a lot over the past year).
• Prime Rate moves based on the Federal Funds Rate. It doesn’t change unless the Feds make a move.
• Savings/CD rates typically increase/decrease on the Federal Funds Rate changes too.

From those examples, it is easy to see how the Federal Reserve and their Federal Funds Rates drives a lot of the rates out there (I didn’t even get into credit card and car rates). Mortgage rates move on a daily basis. Their values (up or down) move more like stocks on a day to day basis… some days they go up a bit, then down a bit, and sometimes up and down in the same day.

Mortgage rates move on bond values. As those values change, so do mortgage rates (and as previously stated, change day to day and sometimes more than once a day).

With the knowledge mortgages rates do not behave like other rates and can change often, they usually find a comfortable “range” to float and up and down in until something (economic data, recession, high inflation) moves them out of it.

I feel the mortgage rate range is moving in the low to high 6s… say 6.25-6.75. Why am I making this statement? When mortgage rates went over 7% several months ago, they immediately began to improve. When rates touched a little under 6% not so long ago, they immediately got worse. In both directions, they changed pretty quickly until they feel back into this 6.25-6.75% range and then slowly moved back and forth.

Which puts us… in the 6s for now. If the economy does enter a recession, expect mortgage rates to improve and move under 6%. If inflation jumps back up, expect rates to get into the 7s again. Depending on who you read, there is talk of inflation stagnating/not improving along with many saying a recession is right around the corner. It feels as if a lot can happen in 2023.

So here we are, possibly in the 6.25-6.75% “eye of the economic storm” for 2023.

Mortgage rates all over the place

Based on the amount of calls and emails I’ve received, most of you know mortgage rates moved to historic lows in March. Rates also shot up about a full point during the middle of the month only to gain some ground back the following week.

What we are experiencing as a society with Covid-19 is unbelievable. All of us are being impacted in some way. There is enough commentary out there, so this blog will stick with what it tries to do best – impacts on the mortgage industry. Some of us are sick of the roller coaster ride with the markets.

Can we get off of this ride?!?

Again, it’s no secret rates are better. The mortgage industry is at an unprecedented level of refinancing home loans. This heavy loan volume is causing underwriting times to get longer than normal. Although purchase loans are not impacted as they get special access to an underwriter. Why? Purchase loans involve moving trucks and refinances do not. Purchases get priority.

So what is moving the markets? Well, it is a lot of things actually.

• Covid-19: This is the easiest one to focus on because of the disruption to the economy of the world. Bad economic news is usually good news for mortgage rates. This is no exception. Covid-19 pushed stocks off of their all-time highs, and all of this money flowed into bonds pushing mortgage rates lower.
• Covid-19 trend before cases in the US: International money flowed into US bonds in late 2019 and early 2020 as from an international stand point, there were fears of an economic slow-down. International investors began buying up our bonds and pushing rates slightly down. So the impact of Covid-19, while dramatic during March, was in play for the past several months.
• Oil Wars: Saudi Arabia and Russia took off the gloves and went at each other. Russian didn’t want to cut back production to try and stabilize oil prices. Instead, Russia wants oil prices to go lower to hurt the US Shale industry (which needs higher oil prices to remain profitable). Since Russia decided to not play nice, Saudi Arabia is flooding the market with oil to gain back market share. Oil prices plunged. Part of the 2,000 point drop of the Dow on 3/9 was the start of the oil wars within OPEC.
• The Federal Reserve: During the month of March, the Fed cut the Federal Funds rate to zero. With the Feds dramatically lowering rates, many people thought this would directly translate to mortgage rates. So far, it has not. The Federal Funds Rate lowers second mortgages/home equity lines. Mortgages rates are still determined by bond movement. When the Fed lowered rates the first time, mortgage rates actually increased. The second time mortgage rates improved from the previous week. Not because the Fed lowered rates but due to the Fed’s pledge to purchase bonds (specifically mortgage backed security bonds). Mortgage rates improved some after this announcement.

Where are as of this post? Mortgage rates are still low, but not as low as they have been over the past few weeks. Why?

• Part of this is bond yields improving from their historic low (making mortgage rates worse).
• Another part is rates were at historic lows in March; meaning, there is way more room for rates to get worse than better.
• Lastly, the industry is pretty much at capacity and cannot handle more loan volume; meaning, banks are not being as aggressive with mortgage rates as they have more business than they can handle.

Where do we go from here? Who knows! Expect mortgage rates to stay low during market uncertainty, and the market is anything but “stable” right now! I also expect rates will improve back to where they were before the week of March 9th when rates unexpectedly got much worse. Beyond being back to historic low levels, I am not sure rates would improve much more unless things got exceedingly worse with the economy and/or the capacity issue within the mortgage industry subsides.

I am currently advising my clients if they are happy with the rate and the numbers make sense, let’s get going! It is much easier for mortgage rates to get worse than better given where rates currently sit. If unhappy, I am setting target rates to contact clients if/when rates move lower and it makes more sense to refinance.

Looking to refinance while rates are super low? If the home is in the state of Georgia, contact me today. In a short phone call, we can determine if the numbers make sense to refinance today, and if not, set a target rate for when rates improve.

Any hope for mortgage rates?

As my colleague recently posted, mortgage rates are off to a rough start this year. As of this post, mortgage rates are a half point higher for the year. I won’t dig into the details of why this is happening. Rodney did a great job of it in his recent post. Today, I’ll focus on what can turn the tide for mortgage rates.

Stocks have suffered a rough start to the new year too. That is normally great news for mortgage rates. Normally as stock prices fall, bond values rise, and mortgage rates improve. The Dow fell over 2,000 points at one moment over the past few weeks, and yet mortgage rates also got worse. If a 2,000 point drop couldn’t help mortgage rates, what can?!?

We must look back at one of the root causes Rodney discussed – inflation. Mortgage rates hate inflation as it eats away at the value of mortgage backed security bonds. As those bond prices fall, mortgage rates rise. The way to help mortgage rates is to combat inflation. The best weapon we have at our disposal is the Federal Funds Rate… the Federal Reserve can continue increasing the Federal Funds Rate. In fact, every time they’ve done that over the past couple of years, mortgage rates have initially improved. Why? The higher the Federal Funds Rate goes, the more it can combat inflation.

Of course, the flip side is raising it too much can cool off the economy (don’t want that). Also, with the new budget deal passed last week by the government, more bonds will be sold to fund the increases to our national budget. More bonds available for sale also lower bond values, pushing mortgage rates higher. As I said in a post late last year, the environment for mortgage rates to get worse is here. That seems to be occurring. While mortgage rates are still low, the time of super low rates could finally be behind us.

The Federal Reserve could increase the Federal Funds Rate to fight inflation and help mortgage rates, but given the other factors at play, the increase to the funds rate may not help improve rates over the long haul for the time being.

If you’ve been sitting on the fence about purchasing a home over the past year because “rates are so low, why hurry,” the time may be now. If you are purchasing in the state of Georgia, contact me. We can get the prequalification process completed in minutes and have you ready to go out and find your new home!

Feds have opposite impact on mortgage rates

Seems the increase of the Federal Funding Rate didn’t have the negative impact on mortgage rates that many of us read about/heard about in the media. Since the Feds increased the Federal Funding Rate, mortgage rates have improved by at least 0.375%. Mortgage rates now sit at their lowest point since the beginning of 2015.

As bonds values go up, mortgage rates go down.

Why did mortgage rates improve if the Federal Funding Rate increased by 0.250%?

As previously discussed in this blog, mortgage rates are determined by mortgage backed security bonds. As these bond values trade, mortgage rates change… when bond values go up, rates go down and vice-versa. Also, when stocks endure bad times, bonds excel. This means as stock values drop, bond values rise, and in-turn, mortgage rates improve.

We all know what happened on Wall Street in January/early February. The Dow posted some historically bad numbers. Whether people were afraid of the price of oil, the oil glut, the Feds raising the Federal Funding Rate, or something else, stock prices plummeted, and so too did mortgage rates.

How should consumers respond:

1. Don’t worry about interest rates getting better after you’ve locked in a rate. We have a float down option on our rate locks. If rates improve, your locked rate may be able to improve too. The rate will not get worse so long as it is locked. In other words, your rate could get better, but not worse. I’ve had several clients take advantage of this feature in the past two months.
2. If you are thinking of buying a home (or refinancing), now would be a good time to get serious about it. Mortgage rates are not far off of their all time historic lows. Even if rates improve, you can use the float down option I just described.

Looking to buy/refinance a home in the state of Georgia, contact me today to get started. We’ll get through the prequalification process and get you ready to buy your new home!

How World Events Impact Mortgage Rates

What do protests in the Ukraine/Thailand/Venezuela, the Crimea dispute, and poor economic news from China have in common? In some way, shape, form or fashion, they impact mortgage rates.

“How” this happens is the better question.

A general rule of thumb with interest rates is this… When there is negative/bad news (poor economic outlook, rumor of war, unrest), mortgage rates tend to improve while stocks lose value. When there is positive/good news (good economic outlooks, increased hiring, resolution to unrest), mortgage rates tend to get worse while stocks gain value.

Notice I used the words like “general” and “tend” in the previous paragraph. With the events over the past several weeks, volatility and inconsistency reign supreme. Let’s look at some examples:

– On March 13, 2014 – China released economic news that continues to show a slow down in their economy. Meanwhile back at the Crimea Peninsula, Russian troops were conducting war games/exercises.

The result? The Dow lost well over 200 points, while mortgage bonds had one of their larger single day increases of 2014. These negative events/news stories helped interest rates improve.

– On March 17, 2014 – It is announced that Crimea has voted to join Russia. This lead to the Ukraine and Western countries threatening sanctions, Russia stating its support for the move, and a tenuous situation becomes increasingly complex and strained.

The results? The Dow endured further losses? Nope. Quite the opposite. The Dow had gains of almost 200 points with today’s futures showing even more gains. Typically, news like this would hurt stocks and help rates, but interest rates worsened on Monday.

The markets seem to be currently reacting to events in unexpected ways. This makes forecasting the direction of mortgage rates more difficult than normal.

How should you respond if you are in the market for a new loan? I have two ways:

1. Lock and Shop: go ahead and lock an interest rate for an extended time without having a home under contract. Once you find a home and are within 30 days of closing, you can then use a float down if interest rates are better than your original lock.
2. Rate Float Down: whether or not you use the Lock and Shop program, should interest rates improve by 0.250% or more from your original rate lock, you can float down to the current rate for free. There is no fee to use this feature. The float down can be used once you are within 30 days of closing and prior to 7 days before closing.

Using either of these programs gives you the best of both worlds… should interest rates get worse, your rate is locked! Should interest rates improve by 0.250% or more, you can still float down to the lower interest rate. This protects you regardless of what happens with the latest US jobs report, or economic outlooks in emerging markets, or the latest events in Crimea… your rate is protected.

To learn more about the free Float Down or the Lock and Shop program, contact me today. I can help you protect your rate now even if you haven’t found the home of your dreams.

Rates up, down and all around

Contrary to some conspiracy theorists out there, interest rates are not lowered based on banks needing more business OR rise because of too much business. If this conspiracy theory isn’t true, what does cause rates to rise and fall?

Interest rates move on a daily basis thanks to movement in financial markets – particularly mortgage backed security bonds. Just as stock values move up and down on earning reports, job market outlooks, etc., bond prices fluctuate just like stocks can.

As discussed in a recent post on this blog, statements by the Federal Reserve (or other government agencies) can impact interest rates. Interest rates are also impacted by what is taking place in the other financial markets. This is exactly what happened in May and June.

– during the month of May, stock prices were setting all time highs. As stocks do well, investors pull money out of bonds and put them into stocks. As money comes out of bonds, their values go down, and interest rates go up.
– with the trend already moving in the direction of a higher interest rate market, the Feds released a statement that their bond buying program would be ending relatively “soon.” With the government no longer buying bonds, it would lower their values. In anticipation of this coming change, the statement pushed bonds values way down and shot interest rates up dramatically in the early part of the summer.

How did interest rates fare in July? Interest rates not only flattened out, but also improved a little in the month of July. Why? The market stabilized after the Feds released another statement backtracking a little on their previous comments. Rates were also helped by weaker than expected economic news and job reports.

From these examples, we can see what really impacts interest rates:

1. as bond prices increase, rates decrease, and vice-versa
2. bad economic news that hurt stocks typically help improve interest rates
3. unexpected comments from government agencies can have quick and strong impacts on rates

This is one area where the conspiracy theory isn’t accurate. Now about Roswell, New Mexico…

Impact of the potential ratings downgrade

A week ago, Standard & Poor’s (known as S&P) downgraded the U.S. credit rating to a negative. The U.S. did not loses its AAA rating, but the downgrade makes it increasingly likely it could occur if government doesn’t get deficit spending under control.

Does the downgrade mean good news for interest rates? Bad economic news is typically good news for mortgage rates. The initial market reaction to the S&P decision would back this up as stocks took a dive, and bonds barely moved on the announcement.

What does this mean in the long term if the U.S. loses its AAA rating? Easy answer – losing the AAA rating would negatively impact everyone.

The damage to stocks is obvious… losing the AAA rating is bad for business. Bad for business = bad for the economy. When the economy drags, stocks tend to follow (as evidenced over the last couple of years).

Combating a downgraded rating would also hurt interest rates. If you read the previously linked Wall Street Journal article, possible scenarios could include:

• the U.S. not defaulting, but becomes more difficult to borrow money
• an option to pay off debt could include printing more money/lowering the value of the U.S. Dollar

Both of those options for dealing with deficit spending and a rating downgrade hurt interest rates. The U.S. would still find funding sources, but not at the favorable rates we see today. An increase in the rates for the U.S. to borrow money would cause all rates to increase.

Second, printing more money leads to inflation. There is no way around it. Bonds HATE inflation. The higher the rate of inflation goes, the faster bonds lose their value. As we all know from reading this blog, as the value of bonds go down, interest rates go up!

Losing the AAA rating would be bad for everyone… the government, investors, stock prices, bond prices, retirees, home buyers… you name it, and it will probably be impacted. This is one thing that both sides in Washington agree on – we don’t want to lose the AAA rating. Now, let’s see if they can agree on a way to prevent a potential ratings downgrade!