The rebound in homebuyer demand continued this week, driven by mortgage rates that hover near record lows. This turnaround in demand, particularly by those who have higher incomes than the typical household, also reflects deferred sales from the Spring.
For the fourth consecutive week, the 30-year fixed-rate mortgage has been below 3.30 percent, giving potential buyers a good reason to continue shopping even amid the pandemic. As states reopen, we’re seeing purchase demand improve remarkably fast, now essentially flat relative to a year ago. Going forward, mortgage rates have room to decline as mortgage spreads remain elevated.
Mortgage Rates Spiking Quickly as Bond Market Panics
Mortgage rates have exploded higher over the past day and a half as the bond market sends threatening signals about a big picture bounce off the recent lows. This is made all the more jarring by the timing and the scope of the movement, as well as the circumstances surrounding it. What does that mean? First off, the scope is huge, considering the 10yr Treasury yield (the most widely cited benchmark for the bonds that underlie mortgage rates) hit 0.318% late Sunday night. While the 10yr doesn't dictate mortgage rates, its movement speaks to the general momentum for all longer-term rates in the US. 0.318% was more than 1.0% below the previous all-time low seen in 2016, and it only took 8 business days to cover that entire 1.0%.
The drop in Treasury yields coincided with decent pricing in the mortgage-backed-securities (MBS) that underlie mortgage rates, which in turn allowed lenders to offer all-time low mortgage rates at some point in the past several business days. For many, it was first thing Monday morning. For others, it was in the previous week. Either way, the average lender has been at or near all time lows on a few occasions over the past 6 business days.
This is why the move is jarring. From all-time lows early yesterday morning, rates have moved up to the highest levels in more than a week for most lenders. The average lender had been able to quote rates as low as 3.125% during the best few hours, but they're now back up in the 3.375% neighborhood.
How could mortgage rates be 3.375% if they were also 3.375% in 2012 and 2016 (years when 10yr Treasury yields only managed to make it into the 1.3% range)? Therein lies the caveat of Treasuries guiding rate momentum but not directly dictating outright levels in mortgages. MBS have their own set of concerns brought about by the pace of the move. The short version of the story is that volatility costs money for mortgage lenders. The longer version would involve a discussion about overly-quick drops in rates prompting homeowners to refinance loans only recently acquired. When that happens, it costs mortgage investors money in lost interest payments. Investors then pay less for the same type of mortgages. Lower investor demand results in lower MBS prices and higher mortgage rates, all other things being equal.
But all other things aren't equal. Lenders have been so incredibly slammed with business that they've either turned it away outright or simply raised their rates high enough to send the message: find someone else to do your loan. On a final, rather complex note, many lenders are beholden to the requirements of their own creditors (even though the lender is a creditor as far as the mortgage borrower is concerned). Due to market volatility, those creditors are not only running low on funds in some cases, they're also requiring or suggesting that lenders set bigger margins on new business right now. In other words, if your rate would have been 3.125% in a calm market environment at current MBS levels, it's 3.375% today.
One last thing to keep in mind when we talk about the lowest available rates: this WILL NOT apply to every scenario. In fact, it ONLY applies to the best scenarios (25%+ equity, 760+ credit, single-family, owner occupied homes). Once you start looking at rates for less than perfect scenarios, things get ugly quick. That has to do with the higher mortgage rates being VERY poorly priced because investors are REALLY scared about how quickly they could be paid off in this environment. And again, the less an investor wants to buy the underlying mortgage debt, the higher your rate is going to be.
Above all this at a longer-term, conceptual level. A bounce of the size seen in the bond market today begs the question of whether or not the coronavirus-induced rate drop (and stock sell-off) is over. If anyone knew how that future would play out, rest-assured, you'd have seen much bigger market movement today. Things can still go either way for a variety of reasons. Certainly, the risk of a bounce has been raised, but we'd need to see much more bond market weakness (i.e. higher Treasury yields) to confirm it. That could lead to a dicey, stressful couple of days as there are two Treasury auctions to content with (tomorrow and Thursday). If the bond market hasn't totally given up by then, we're more likely to get a clearer sense of where we stand by the end of the week.
Generally, lenders will evaluate the four Cs when determining a borrower's eligibility for a mortgage. If your self-employed, you'll still be evaluated on the four Cs, but may be asked to provide some different or additional documentation to determine how much you may be qualified to borrow.
If you're self-employed, you may be required to submit the following documents when applying for a mortgage:
California Mortgage loans today are sold on the secondary market and
have prices like stocks. There is a price for a 30 year, 15 year, and adjustable
rate mortgages in California. If you own a home in California and you are looking to refinance your home or if you are looking to buy a home now is the time to see what California home loan programs you have available to you and find out what interest rate you qualify for with refinancing or purchasing a home in California.
So really everyone has the same rates. So for example if
you wanted to buy apple stock at $100 , I don't care how many companies you call the
price is the price. Just like stocks you are going to pay a transaction fee
(closing costs) and that can vary from company to company. If you used an online
stock company you can save money over using a full service stock broker as their
overhead is less as they do things electronically. Much
the same in the mortgage market, Banks with many office locations conviently
located for you to go to cost money and with a fixed market prince for mortgages
they have to increase there rates or fees to cover the costs.
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With the economy slugglish and plodding along and no inflation on the horizon. The feds announced that the federal funds rate will remain low through 2013. This is a long horizon and many factors could change this.
However with rates now below 4% for a 30 year mortgage this is be the time to buy. With tax deductions for ownership and values as well as rates dropping the mortgage payment you could have is close to what rent would be with a 10 % down payment.
Give me a call and i can run the advantages for you...
While Gold, Oil and Silver all hit new record highs this last month. The stock market is wavering and starting to teeter again. Unemployment remains high and the economy is not really doing all that much better.
Quietly the mortgage rates are dropping. As a matter of fact we just hit the year low and have broken new resistance. Click here for a graph. I believe that the affordability index is at new records as well. In the midst of the media's gloom and doom there are bright spots.
If you are a renter you can qualify for a purchase for about what you are paying for rent. If you are a homeowner lock into a low fixed rate now if you are planning to stay.
There are new programs out there for up to 125% Loan to value for refinancing on a Fannie Mae loan. As well as loans up to 3 million with 40 year amortizations and interest only payments. Housing has never been so affordable in many years.
Real Estate is and always be a great and safe long term investment.
Visit our website HERE for Real time quotes on rate and terms.
Watching the protests in the Mid-East and the resulting fears of an oil crisis creates a drop in interest rates.
With oil pushing $100 a barrel the resultant increase in costs to business not to mention the gas pump for the average consumer could create an economic downturn.
With the stock market losing ground already there is a flight to safer grounds, which have been bonds and mortgage backed securities. I have seen rates drop this last week almost a full point.
This means a great opportunity to lock in new financing terms or purchasing at a lesser cost. Home affordability is key to the success in the US economy and is the missing piece to the recovery. We will see ups and downs.
If you have not locked in a low fixed rate time to revisit the opportunity NOW. Give me a call.
So just when i though the rates were stable the markets corrected once again...
With rates now pushing over 5%, almost a 1% increase in the last quarter. There is still a value problem in housing as a 1% increase in rates creates a 16% decrease in value for the same payment, so the afordability index gets worse.
I don't know about you but I do not feel as if this economy is out of a recession... Unemployment dropped to 9% from 10%, but is that during the holidays with more jobs created? Stock market went from up over 10 % in the same time period. So signs would indicate that we are pulling out.. So should the government raise the Fed rate now to curb off inflation? or will the increases already put a damper on the markets.
In the long run though housing is still the best investment.
Locking in a 30 year loan for 5% and waiting this out is a great investment... with more people renting now.. If you have money parked I would invest in a rental property or buy you own home
My home dropped over 50% from the high and I have lost all equity I gained in the last 10 years.. how much lower can it go? Its like buying 10 yeas ago now with lower rates!