Mortgage Rates Still Near 30 Year Lows Despite Stumbling Economy
Yes, the stock market dropped 3.5% for the week, existing home sales came in bad, foreclosure rates continue to climb, oil prices are going through the roof, earnings forecasts are declining, consumer sentiment is poor, wholesale inflation climbs, and the Fed speak leans toward an end to rate cuts in this cycle, yet mortgage rates are still near 30 year lows!
The big numbers relating to mortgage rates are home sales, foreclosure rates, and inflation. The economic news media is painting a dim picture in these areas, but is it an accurate assessment? Things may not be as bad as they seem, but recovery appears at least 2 quarters away in my opinion. Home sales are actually stabilizing and actually increasing in certain regional markets. The numbers appear to be skewed by the dismal housing numbers in a few select and densely populated areas such as California, Florida, and Las Vegas among other high cost metropolitan areas. Foreclosure statistics follow the same pattern, which could lead one to believe that once the high-cost home markets stabilize, the housing numbers will reflect a rapid recovery rate nationally. That is one of the problems with the current reporting and home investment lender criteria for home loans, as they are based upon national statistics as opposed to regional markets. The housing numbers are a huge part of a lenders mortgage risk premium spread and this spread is currently 1.0 to 1.5% higher than historical spreads due to the risk that home values will continue to decline. Can you imagine how low mortgage rates could be right now without the inflated risk premium?
Inflation is another ball of wax. In my opinion, the Fed has played their rate cut cards in the correct manner and inflation should be stabilized by year’s end. Energy costs and specifically, oil, is the fly in the ointment. Crude oil continues to rise due to speculation of increased global demand, decreased supply lines, and pitiful refinery output in the US. The government appears to have used magical mathematical algorithms to reflect that energy costs are in fact, at a reasonable inflationary level, if you can even begin to believe that. The fact is that energy costs will continue to be a major inflationary concern and could be the stumbling block to a quick and robust overall economic recovery. Last week’s PPI numbers reflected a not so positive outlook on near term inflationary pressures.
Why are mortgage rates so low in the face of these awful current economic factors? Well, the 10-year treasury yields are still near historic lows also. These yields plus the mortgage risk premium spread make up the mortgage rates that borrowers are offered at the mortgage store counter. When economic times are tough and filled with risk, investors tend to flock to the bond market for safe investments at reasonable returns. As the bond prices increase because of the demand, their yield declines and mortgage shoppers jump for joy. This trend may not last forever and in fact, the 10-year yields have been increasing, so any positive housing and inflation numbers will be a welcome treat for those of us who love low mortgage rates.
A bit of good news for those shopping for Jumbo mortgage rate loans. Lenders are finally getting serious about underwriting new conforming jumbo mortgages for more than $417,000. The new conforming jumbo mortgages officially were available in April of this year, but lenders were not pricing them any differently and Jumbo shoppers continued to pay 1% or higher than conforming mortgage rates. Fannie Mae just announced that it would buy jumbo conforming mortgages for the same prices as conforming loans and lenders are jumping in. The new conforming jumbos are now at about three-eighths to one half of a percentage point higher than conforming mortgages. I should also note that FHA has increased its lending limits in high cost areas and many jumbo loan shoppers can beat the pants off a conforming jumbo rate with an FHA home loan. Make sure you check both options when going jumbo.
Have a Great Memorial Day and May the Mortgage Rates be With You!
Refinance Tool Box
The big numbers relating to mortgage rates are home sales, foreclosure rates, and inflation. The economic news media is painting a dim picture in these areas, but is it an accurate assessment? Things may not be as bad as they seem, but recovery appears at least 2 quarters away in my opinion. Home sales are actually stabilizing and actually increasing in certain regional markets. The numbers appear to be skewed by the dismal housing numbers in a few select and densely populated areas such as California, Florida, and Las Vegas among other high cost metropolitan areas. Foreclosure statistics follow the same pattern, which could lead one to believe that once the high-cost home markets stabilize, the housing numbers will reflect a rapid recovery rate nationally. That is one of the problems with the current reporting and home investment lender criteria for home loans, as they are based upon national statistics as opposed to regional markets. The housing numbers are a huge part of a lenders mortgage risk premium spread and this spread is currently 1.0 to 1.5% higher than historical spreads due to the risk that home values will continue to decline. Can you imagine how low mortgage rates could be right now without the inflated risk premium?
Inflation is another ball of wax. In my opinion, the Fed has played their rate cut cards in the correct manner and inflation should be stabilized by year’s end. Energy costs and specifically, oil, is the fly in the ointment. Crude oil continues to rise due to speculation of increased global demand, decreased supply lines, and pitiful refinery output in the US. The government appears to have used magical mathematical algorithms to reflect that energy costs are in fact, at a reasonable inflationary level, if you can even begin to believe that. The fact is that energy costs will continue to be a major inflationary concern and could be the stumbling block to a quick and robust overall economic recovery. Last week’s PPI numbers reflected a not so positive outlook on near term inflationary pressures.
Why are mortgage rates so low in the face of these awful current economic factors? Well, the 10-year treasury yields are still near historic lows also. These yields plus the mortgage risk premium spread make up the mortgage rates that borrowers are offered at the mortgage store counter. When economic times are tough and filled with risk, investors tend to flock to the bond market for safe investments at reasonable returns. As the bond prices increase because of the demand, their yield declines and mortgage shoppers jump for joy. This trend may not last forever and in fact, the 10-year yields have been increasing, so any positive housing and inflation numbers will be a welcome treat for those of us who love low mortgage rates.
A bit of good news for those shopping for Jumbo mortgage rate loans. Lenders are finally getting serious about underwriting new conforming jumbo mortgages for more than $417,000. The new conforming jumbo mortgages officially were available in April of this year, but lenders were not pricing them any differently and Jumbo shoppers continued to pay 1% or higher than conforming mortgage rates. Fannie Mae just announced that it would buy jumbo conforming mortgages for the same prices as conforming loans and lenders are jumping in. The new conforming jumbos are now at about three-eighths to one half of a percentage point higher than conforming mortgages. I should also note that FHA has increased its lending limits in high cost areas and many jumbo loan shoppers can beat the pants off a conforming jumbo rate with an FHA home loan. Make sure you check both options when going jumbo.
Have a Great Memorial Day and May the Mortgage Rates be With You!
Refinance Tool Box
posted by Jim Bisnett at
1:35 PM
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