Mortgage Rates Remain Near Historic Lows
A smattering of mortgage-related headlines from the previous week tell complete different stories: “Mortgage Rates Tick Up;” “Mortgage Rates Fall Again;” and “Mortgage Rates ‘All over the Map.’ ” With such a disparity, it’s hard to make heads or tails of the situation.
In the end, all of these stories are accurate. The discrepancy can be explained both in the source of the mortgage data and by the time period implied by the comparison. For example, two different mortgage surveys revealed an average 30-year fixed rate of 5.24% and 4.82%. That’s a pretty sizable difference, and would amount to thousands of dollars over the life of the mortgage. Meanwhile, comparing mortgage rates to where they were last week yields a different result than comparing to last month, let alone last year. I think the most meaningful headline, then, is the one that I chose for this posting: “Mortgage Rates Remain Near Historic Lows,” which is true regardless of which data source you quote.
Jumbo mortgages, meanwhile, are currently being priced at 6.37%, on average, which unbelievably, is less than what you would have paid for a conforming loan only one year ago. The 15-year fixed rate is hovering around 4.5%. The spread to the 30-year fixed rate appears to have shrunk recently, in proportion to a similar tightening of the yield curve for US Treasury securities, upon which mortgage rates are usually derived. Based on the chart below (courtesy of the WSJ),you can see that the 1-year ARM rate has remained close to the 30-year fixed rate, with the exception of a brief spike during the stock market collapse last September. It, too, has trended downward recently.
There are generally a few factors which have coalesced to bring down mortgage rates. First of all is slacked demand. “Moody’s chief economist John Lonski notes that they [rates] have not have fallen by enough to stabilize home sales,” and that “fears of home-price deflation and worries about future employment and income “still outweigh near record high levels of home affordability.” In other words, low rates or no low rates, mortgage demand remains weak because the housing market is weak. In fact, most of the current demand for mortgages is coming from re-financings as opposed to home-buying. This is no mystery, since rates have fallen so precipitously that it would probably already be economical to refinance even if you’ve only held your mortgage for one year or so.
Rates are also being held low by the activity of the Federal Reserve Bank, which as part of its quantitative easing program, is purchasing hundreds of billions of dollars worth of mortgage-backed securities. This has made investors comfortable again with the notion of buying such securities, because it knows that the Fed is propping up the market.
You’re probably wondering: ‘Will these trends continue?’ and, by extension, ‘Will mortgage rates continue to remain low?’ Unfortunately, no one can answer these questions with any meaningful degree of accuracy. I will say that while it’s possible that mortgage rates won’t rise much until the economic recession heals itself, it seems unlikely that rates will remain low for much longer. This is not to be construed as an exhortation to run out and buy a mortgage or to refinance your existing mortgage, but at the very least, it’s a slight nudge towards paying attention to context; the average 30-year fixed rate has remained below 5% for an unprecedented 10 weeks, hint hint.
I would also caution you against trying to time the market. It doesn’t work for stocks, and it certainly doesn’t work for mortgage rates. You could get lucky by waiting a few weeks, and lock in an even lower rate. Then again, you could end up paying a substantially higher rate, if the market changes next week. While everyone wants to avoid “mortgage remorse,” just remember that it will hurt more to pay thousands because you waited than to have missed out on the possibility to save just as much because you got lucky and rates declined.