Posts Tagged ‘mortgage bonds’

Mortgage rates all over the place

March 17, 2020

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.

Republican tax plan and mortgage rates

December 12, 2017

All signs are pointing to the Republican party passing tax reform. The Republicans are using the “budge reconciliation” process to get the bill passed. By going this route, the Republicans avoid the need for 60 votes for approval in the Senate while preventing the Democrats the ability to use  a filibuster. Whether you opposed tax reform OR couldn’t wait until it arrived, tax reform seems likely to be here once the House and Senate finish reconciling their two tax reform bills.

What does this mean for mortgage rates?

Initially, nothing. On the surface, tax reform has no direct impact on mortgage rates. This is just like when the Federal Reserve raises the Federal Funds Rate. The Funds rate impacts second mortgages, car loans, credit card rates, etc., and not mortgage rates. But…. the impact these have on the market can impact mortgage rates.

Stocks have been on a major rally for roughly two years now. The DOW continues to set record highs. Why the surge? Wall Street has bet on tax reform that would benefit business. Trump’s election prompted a big rally back in November 2016, and this rally continued throughout 2017.

Now that tax reform is here, stocks seem poised to continue their good run and maybe continue to push higher. As stock values rise, bond prices normally fall due to the fact that people are putting more money into stocks than bonds. As bond values fall (specifically mortgage backed security bonds), mortgage rates go up. While tax reform doesn’t directly affect mortgages rates, the impact on stocks can influence mortgage rates.

Frequent readers of this blog are aware of how stock prices/mortgage backed security bond prices impact mortgage rates. If you are new to this blog, use this link to read past posts about the subject. 

Currently mortgage rates are definitely off of their yearly lows and moving back toward their yearly highs of 2017. Combine tax reform, continued stock market rally, and the Federal Reserve no longer purchasing bonds from quantitative easing (they are beginning to sell their bonds now), and you have an environment where mortgage rates could go noticeably higher.

Market analysts have said for years now (since 2010) that “this is the year mortgage rates go up,” and rates haven’t gone up. When do I think rates will go up? At this point, I’ll believe it when I see it. That said, the environment for mortgage rates to increase is as real as it has ever been in the past several years.

Considering refinancing or buying a home, but been pushing it off since rates are so low? Maybe now is the time to at least have a conversation about your plans, timing, and how to proceed? If the home loan will be in the state of Georgia, I can help! Contact me today and we’ll get started!