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.
The Federal Reserve said they’d take inflation seriously. After being a late to react, the Fed declared war and backed up their words with a historic pace of rate increases. While no one wants a recession, the Fed implied they are aware their actions may cause a recession and they are okay with this course of action to get the job done.
Just as the Fed was a little late when they began raising rates, they could be now raising rates too fast. A growing number of analysts are worried that the Fed is moving too far at too fast of a pace. The reasoning for these concerns is that rate increases take time to trickle down to the economy. Some say it takes a few months, others say it takes even longer. Thus far this year the Fed has raised short-term rates by over 3.0%.
Should the Fed slow down? Perhaps they will in December. The inflation numbers leveled off over the summer and dropped in the reports from September. It will be interesting to see the inflation numbers for October and November.
Getting inflation under control is important, but perhaps not having a dramatic rate increase in December could be appropriate. Maybe take a little bit of a breath to see if the over 3.0% of rate increases this year is getting the job done. I’m certainly glad I do not have the job of trying to balance out inflation figures while hoping to not cause a recession.
If the October and November stats show inflationary figures continuing to cool, perhaps take it easy in December and let’s see how things unfold. The Fed can always go back to a big rate increase in late January 2023.
Mortgage rates are near their all time lows. I have clients ask me when will rates be “high” again. After many years of expecting rates to dramatically rise, my answer now is “I’ll believe it when I see it.”
While I am not expecting mortgage rates to go from their near historic low levels to 6.5% (where rates were when I started the mortgage industry), there is one thing (one word in fact) that could cause mortgage rates to jump off of these low levels – Tapering.
What is tapering? Before we get into that, what does the Fed have to taper from?
Since the start of the pandemic, the Fed continues supporting the financial markets by purchasing massive amounts of US Treasuries and mortgages. The Fed controls short-term interest rates directly. But they have also influenced long-term rates – especially mortgage rates – through these asset purchases.
While the Feds do not plan on raising rates this year (or next year), one thing they can do is reduce the amount of mortgage backed security bonds they purchase. The Feds used this technique to lower interest rates during the financial crisis over a decade ago, and they employed this technique again to stabilize the markets during covid.
It is unlikely that rates on home loans would have hit and stayed at these historic lows without the Fed purchasing mortgage bonds. Now that the economy is recovering, one wonders when the Fed will cut back on this program. Tapering means the Fed will start to slow down these purchases over a period of time. Even the mention of this word could affect the interest rate markets. It happened as the economy recovered out of the Great Recession, and rates will get worse when tapering starts again coming out of the pandemic.
If you’ve been thinking about refinancing, now is a great time to do it. Contact me today. We’ll run through the numbers on a new loan, compare this to your current loan, and see if a refinance is something that makes sense for your situation.
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.
The federal reserve completed their fourth rate hike of the Federal Funds Rate this week. Guess that means mortgage rates are up? Nope! They are not. Mortgage rates have improved.
In fact, mortgage rates improved by over a half a point better coming off their 2018 highs in early November. Why? This blog covers the topic often, but not often enough as a lot of people believe mortgage rates flow with the actions of the Federal Reserve.
While mortgage rates may get worse when the Federal Reserve raises the Federal Funds Rate, mortgage rates themselves are actually determined by the value of mortgage backed security bonds. As these bond prices go up, mortgage rates go down (and vice versa). The Federal Funds rate impacts rates on car loans, credit cards, and home equity lines (second mortgages). We’ve seen those rates get higher this year as the Fed raised rates a full point in 2018.
What is causing mortgage rates to improve? It’s the usual suspects:
When mortgage rates were at their yearly high, stocks were at an all time high. Since the Dow his 26,800, it has lost 4,000 points (15% of its value) as of this blog post. Money is coming out of stocks and going into bonds. As bond prices go up, mortgage rates go down. It’s no coincidence rates were at their highest point of 2018 when the Dow was just like rates are now improving as the Dow pulls back.
Stocks are slowing their historic run due to bad economic news. There are signs the economy is potentially headed toward a recession (some believe it will happen in 2019). Bad economic news sends investors from higher risk/higher reward stocks into the safer investment/less reward bond market.
The Federal Funds Rate itself – as it moves higher, inflation is slowed. Mortgage rates hate inflation, and combating inflation is a way to help mortgage rates improve.
What to do with this rate improvement? If buying a home, rates are still low and headed back near their levels at the start of 2018. Purchasing a home with these improved rates gives the buyer a 6% increase on their purchase price. Now is a great time to start looking. The spring market for buyers/buying power is already upon us. If you’ve considered doing a refinance to pay off an equity line whose rate is going up and up this year, now is a much better time to consider making this move.
Owning or buying a home in Georgia? Ready for that mortgage conversation? Contact me today, and we’ll get started!
Mortgage rates are on the rise (from the dead?!? 🎃🎃🎃Happy Halloween! 🎃🎃🎃) again in the month of October. Mortgage rates jumped sharply to yearly highs and to levels not see in over seven years. Mortgage rates for a 30 year fixed loan are nearing 5%. What is going on!?!
Mortgage rates rising can be scary!
A year ago, mortgage rates were just under 4%… that is about a full point lower than they are today. I know what a lot of people think… “it is because of the Federal Reserve raising rates.” Not exactly.
The Federal Reserve raised rates three times so far this year at 0.250% each time. That means the Federal Funds Rate is up 0.750% on the year, but mortgage rates are up almost 1%. Why the difference?
the Federal Funds rate directly impacts the rate on second mortgages, car loans, credit card rates, etc.
bond values – specifically mortgage backed security bonds (or MBS bonds)- impact rates for first mortgages. As these bond values decrease, mortgage rates increase.
That is what we’ve seen this year. Stocks are up on the year, the economy is better, and MBS bond values are down… meaning, higher mortgage rates. Remember the reason we saw all time historic lows for mortgage rates was two-fold.
First, the economy went through the Great Recession. In this environment, investors move money out of stocks and into bonds. The more money into bonds mean those values go up, and mortgage rates go down. As the economy improved, more money is going into stocks and out of bonds (bond values drop and mortgage rates rise).
Second, the Federal Reserve purchased bonds (quantitative easing or QE) to help push rates down to stimulate the housing market. The economy is now doing well, the Federal Reserve ended QE, and the Feds are now selling off some of the bonds they bought during QE. All of the factors pushing rates to historic lows are gone, and the current environment on rates is pushing them up. This trend doesn’t look like it will change anytime soon.
What can we expect? Earlier this year, mortgage rates jumped 0.75%, but recovered about half of those losses. We can expect to see some market fluctuations, and possibly some positive improvements in mortgage rates. Those looking for rates to get below 4% again? Those days are long behind us now, and probably not returning anytime soon.
Worried about rates going up even more? Considering buying a home but waiting for the right time? If you are buying in Georgia, contact me today. Let’s talk about what buying a home would look like for you, and see how the current dynamics in play will impact your next home purchase.
This week the Federal Reserve meets again with the prospects of another hike in the Federal Funds Rate. While there seems to be positive sentiment for an increase, the excitement for an increase is lower than it was a few weeks ago. There are concerns in the markets with events overseas, increased prices in oil, and a sluggish first quarter of economic growth in the US.
If the Fed raises rates, it would be the seventh increase within the past 30 months. That said, rates would still be well below where they were at the start of the recession. Whether they raise rates or not, analysts will be watching carefully for the Fed’s statement which will be released on Wednesday along with the rate decision. This statement may give us a clue of what the Fed is thinking about rate increases for the rest of the year and perhaps even into next year. A major question to answer will be at what level will they consider rates “normalized.”
In terms of mortgage rates, the last several times the Feds have raised the Federal Funds Rate, mortgage rates have either improved or at least stayed the same. Why? The higher the Federal Funds Rate, the more inflation is kept in check. Since mortgage rates hate inflation, this can help push mortgage rates down. Considering mortgage rates have increased by 0.750% this year, any relief would be welcomed. So don’t worry about hearing the Feds are raising rates because that may actually help mortgage rates improve.
Looking to get prequalified to buy a home in Georgia? Contact me today today and I can help you toward owing your new home!
Mortgage interest rates continue rising. Other recent blog posts have covered the impacts of inflation, the Federal Funds rate, and stock market influences on mortgage rates. Another major influence on mortgage rates is government policy.
In 2008, the Federal Reserve implemented a program called “quantitative easing” (QE). The Fed created money to buy securities like mortgage backed securities and public bonds from banks. This new money increased bank reserves. The idea is that the new cash would motivate banks to lend more money. In buying new assets, stock prices would rise, and interest rates would fall, thus boosting investment further. Given the trillions of dollars of assets purchased, it’s logical to assume that interest rates on all types of debt are lower than they would have been without QE.
The Fed ceased QE security purchases in October 2014. A government policy used to keep rates low ended, and experts wondered if mortgage rates would increase. But rates stayed near their historic lows until November 2016. Rates rose quickly after the election by almost a full percentage point, and then slowly retreated over most of 2017.
In October 2017, the Fed began “normalizing its balance sheet” by selling its securities holdings – selling the bonds purchased in QE. Experts predicted this policy would have the reverse effect of QE:
·Bond price decreases due to increased supply (as the Fed sells its holdings).
·Falling bond prices lead to increases in bond yields, which translates to rising interest rates.
And that appears to be happening. From a lender’s perspective – QE was great. I loved quoting interest rates less than 4%. And now it’s frustrating and stressful to see interest rates rising and continuing higher. But it makes sense given the broader economic and government policy environment.
It is impossible to accurately predict where mortgage rates will go. Sudden changes in government policy, international relations, etc. can cause mortgage rates to change direction. Given that caveat, it appears likely that mortgage rates have truly left the historic low levels of the last few years and will likely not return there anytime soon. I think it is logical to expect rates to continue rising for the short term.
So, if you know someone in Georgia who is considering a home purchase, it may be a good financial move to pull the trigger before rates go much higher. Refer that someone to me and we can explore their loan options together. We at Dunwoody Mortgage offer competitive rates in this changing environment, and as a small company, we can go directly to our executives to work out the best pricing “deal” possible. In addition to competitive rates, we consistently deliver outstanding service to get home buyers to closing on time.
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!
Wow! Our economic world has gone crazy in recent weeks. The Dow Jones average has dropped about 7.9% since its high on January 26, less than 3 weeks ago.
Mortgage interest rates have been changing dramatically too. Rates have increased a half point (0.5%) since January 2. Back in mid-December, I quoted an interest rate to a first-time home buyer named John. Today, in mid-February, I would likely have to charge him 0.625% more than what I quoted in December.
So, what is driving the rapid mortgage rate changes? In short, Wall Street, economic factors, and government policy.
To understand the basics, first realize that the vast majority of conventional mortgages are sold by lenders to Fannie Mae and Freddie Mac. Fannie and Freddie then package these mortgages into mortgage backed securities (MBS). Money managers, pension funds, insurance companies, mutual funds, etc. buy the MBS to keep in their investment portfolios. They buy and they sell them like other investments.
That means that the same economic factors that influence stock and bond prices – economic productivity, unemployment, inflation, and government policy – all impact mortgage interest rates. And MBS must compete with other investment vehicles such as stocks and bonds to attract investors.
Many experts consider the market for 10 Year Treasuries as a benchmark or comparison for MBS. Both investments offer stable, predictable cash flows. Since January 2, 2018, the 10 Year Treasury rate has increased almost 0.4%. Looks like interest rates on these competing investment vehicles are rising at the same time.
Given recent positive unemployment figures and wage growth, inflation concerns are increasing. Higher inflation expectations tend to drive higher interest rates on Treasuries, bonds, and MBS. Let’s face it, if investors expect inflation to be 3%, they will want to earn more than 3% on their fixed-income investments, right. So as inflation concerns rise, it is logical to expect mortgage interest rates to rise accordingly.
When it comes to mortgage interest rates, there’s much more to consider, and we will delve into more details in future posts. For now, if you know someone in Georgia who is considering a home purchase, please have them contact me. We at Dunwoody Mortgage offer competitive rates in this changing environment, along with outstanding service to get home buyers to closing on time.
Clay Jeffreys is a Mortgage Consultant with Dunwoody Mortgage Services and a writer for “the Mortgage Blog.” If you would like to be a guest writer for "the Mortgage Blog" please contact Clay for details.
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