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Mortgage Rates
Market Trends
Mortgage rates are low right now but pinning them down this week could be a challenge. As Labor Day Weekend nears and Wall Streeters take their head-start on the holiday, trading volume will fall, which will cause mortgage rates in North Georgia to get jumpy.
As mortgage rates change, so does the long-term cost of owning a home. Every 1/8 percent adjustment changes a household budget.
Meanwhile, the relationship between “vacation days” and mortgage rate volatility is an interesting one; based more in scarcity than market fundamentals.
Rates tend to get volatile near holidays because of two inter-related facts:
- Conforming mortgage rates are based on the price of mortgage-backed bonds
- Mortgage-backed bonds can’t trade without a buyer and a seller at a specific price
So, as the week progresses and more traders leave for their respective “extended” 3-day weekends, there’s fewer buyers and sellers left on Wall Street to connect for a trade. As a result, mortgage bond prices move across larger gaps than on a “normal” day which, in turn, translates into faster, larger changes in rates.
This phenomenon can be exaggerated during periods of economic uncertainty — like what we’re in now — and, furthermore, there’s a bevy of important data set for release this week including the FOMC Minutes, inflation data, and August jobs figures.
In other words, rates would have been volatile without the vacation week. The presence of Labor Day just piles on.
Mortgage rates may rise this week, or they may fall. Either way, if you have a chance to lock something favorable and within your budget, consider doing it. Rates are at all-time lows and likely won’t last.
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The Federal Open Market Committee holds a one-day meeting today, its fifth scheduled meeting of the year, and sixth overall since January.
The FOMC is the government’s monetary policy-setting arm and the group’s primary tool for that purpose is an interest rate called the Fed Funds Rate.
The Fed Funds Rate is the prescribed rate at which banks borrow money from each other and, since December 16, 2008, the Federal Reserve has voted to keep the benchmark rate within a target range of 0.000-0.250 percent.
It’s the lowest Fed Funds Rate in history.
Because the Fed Funds Rate is near zero, it’s accommodative of economic growth, spurring businesses and consumers to borrow money on the cheap. This, in turn, fosters economic growth within a U.S. economy that is somewhat tentative and facing headwinds.
The Fed has said over and again that it will hold the Fed Funds Rate “exceptionally low” for as long as conditions warrant. It’s expect that the Fed will reiterate that message in today’s post-meeting press release.
However, just because the Fed Funds Rate won’t be changing today, that doesn’t mean that mortgage rates won’t. Mortgage rates are not set by the Federal Reserve; open markets make mortgage rates.
Mortgage rates in Georgia tend to be volatile when the Fed is meeting. This is because the Fed’s press release highlights strengths and weaknesses in the economy and, depending on how Wall Street views those remarks, bond markets can undulate and mortgage rates are based on the price of mortgage-backed bonds.
When Ben Bernanke & Co. speak, Wall Street listens.
The Fed’s press release today will be dissected and analyzed. Talk of higher-than-expected inflation, or better-than-expected growth should have a negative effect on rates. Talk of an economic slowdown may help rates to fall.
Either way, we can’t be certain what the Fed will say or do this afternoon so if you’re floating a rate right now and wondering whether the time is right to lock, the safe choice is to lock before 2:15 PM ET today.
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No doubt you’ve heard that mortgage rates are low. They’re lower than they’ve ever been in history. The news is everywhere.
Just check out some of these headlines from the last 24 hours:
- Mortgage rates set new lows for the 6th straight week (Reuters)
- Mortgage rates fall again; 30-year fixed at 4.54% (Wall Street Journal)
- Mortgage rates hit another low : 4.54% (NPR)
Fixed mortgage rates are now down more than 1/2 percent from the start of the year, and 3/4 percent from just 1 year ago. The drop has dramatically improved home affordability for home buyers in Blue Ridge and Blairsville while creating refinance opportunities for existing homeowners.
From a payment perspective, a conforming, 30-year fixed rate mortgage is now cheaper by $41.94 per month per $100,000 borrowed versus July 2009.
A homeowner with a $300,000 mortgage, therefore, is saving $45,295.20 over 30 years.
Low mortgage rates rarely last long and rates appear to have troughed. After a big downhill between April and July, they’re now flat. This could mean rates have finished falling, or that they’re gearing up for another drop lower. Either way, if you haven’t talked to your real estate agent about home affordability, or your loan officer about refinancing, it may be time to make that call.
If today’s market marks the end of low rates, rates are expected to rise quickly.
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For the second consecutive month, U.S. consumer confidence is plunging. July’s official reading is its lowest since July of last year and the figures run in stark contrast to just two months ago, when the index touched a multi-year high.
According to The Conference Board, July’s figures are reflective of a more pessimistic consumer; one concerned about “business conditions and the labor market”.
Falling confidence numbers are presumed to be poor for the economy. For homeowner and home buyers in Hiawassee and Blairsville, however, they can create opportunity. Low confidence can influence the mortgage market in a positive manner, driving mortgage rates down.
Mortgage rates are already at their lowest levels of all-time.
The link between consumer confidence and everyday mortgage rates roots in consumer spending.
Consumer spending accounts for close to 70% of the overall U.S. economy so, the thought goes that, a less confident consumer is less likely to spend money, thereby retarding economic growth. This harms the stock markets and drives cash to bonds, including mortgage-backed bonds.
More bond demand leads bond prices to rise which, in turn, pushes mortgage rates lower.
The other side of lagging confidence is that Americans may be less likely to take new financial risks when they’re feeling unsure, including buying a new home. This can then drag on the housing market, negatively impacting home prices across North Georgia.
Falling home values can help buyers, harm sellers, and stymie would-be refinancers.
It’s tough to predict how consumer confidence data will work its way through the economy, but in the near-term, it appears to be helping mortgage rates stay low. If you’re floating a mortgage rate with your lender, or contemplating a refinance, the time may be right to lock in a rate.
Low rates can’t last forever.
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Mortgage rates may be dropping, but mortgage costs are not.
According to Freddie Mac, the average required discount points on a conforming mortgage rate are higher by 0.1 percent since early-May.
A “discount point” is prepaid mortgage interest; an up-front fee paid by a borrower in exchange for a lower mortgage rate. In most cases, discount points are tax-deductible.
Tax-deductible or not, though, rising costs are rising costs and Freddie Mac glosses over it. In its weekly press release, the government group offers mortgage rate comparisons to weeks prior, but doesn’t do the same for required points.
The press fails to mention discount points entirely.
An increase of 1/10 percent in discount points costs home buyers and refinancing households in Blue Ridge and Blairsville an extra $100 per $100,000 borrowed.
The hike reminds us that there’s more to a mortgage than just its rate — costs matter, too. And if you’ve only been watching the headlines, you would have missed how costs are rising.
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Because of strife in Greece, Spain and North Korea, conforming mortgage rates are back to all-time lows. They’re at levels not seen in 50 years. For homeowners that missed the Refi Boom of November 2009, it’s a second chance.
In this well-presented, 3-minute video from NBC’s The Today Show, you’ll get tips getting low rates and choosing the best time to lock in.
Some of the topics covered include:
- Why were the experts wrong about rates moving higher this summer?
- How much money can you save with a 1 point drop in your interest rate?
- Should you buy a bigger home now that rates have fallen?
The advice in the piece is matter-of-fact and centered. There is no cheerleading and the message is honest. Mortgage rates are low and they likely won’t stay that way. If you’ve been thinking about a refinance, talk to your loan officer as soon as possible.
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Shopping multiple lenders for a “good mortgage rate” can sometimes save you 1/8 percent on your rate and/or a few hundred dollars in fees. However, when it comes to getting the best mortgage rate, you’re going to more than good research skills.
You’re going to need some luck.
Mortgage rates for people in the North Georgia Mountains or anywhere else, for that matter, are unpredictable, ever-changing, and rarely change as expected.
For example, when the Federal Reserve left the mortgage market March 31, 2010, analysts said that mortgage rates would rise by a half-percent or more. It was practically stated as fact on TV. When April 1 came around, though, rates didn’t rise.
Instead, a volcano erupted and mortgage rates dropped on safe haven buying.
Then, a week later, as the volcano ash cleared, mortgage rates were supposed to resume their rise. Only they didn’t. Instead, a debt crisis emerged in the Eurozone and mortgage rates dropped.
Since March 31, conforming mortgage rates are lower by roughly 0.125 percent, according to Freddie Mac’s weekly mortgage rate survey. At today’s rates, the savings are roughly $20 per month per $200,000 borrowed — or $100 per month based on their original, post-March 31 forecast.
It brings us to one of the most important axioms in rate shopping: You can’t shop for good luck.
- On some days, rates go higher
- On some days, rates go lower
- On some days, rates stay the same
Occasionally, there are days when rates do all three.
As a home buyer or would-be refinancer, what rate you get depends on at what time of day you do your shopping.
You can’t predict what will happen next in mortgage markets — even just an hour from now. Therefore, the smartest move, sometimes, is just lock your rate now. At least that way, you’ve got a guarantee.
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On the first Friday of every month, the U.S. government releases its Non-Farm Payrolls report.
More commonly called “the jobs report”, Non-Farm Payrolls is a major market mover. The number of working Americans is directly tied to the health of the economy which, in turn, drives the stock and bond markets.
In general, when jobs numbers improve, it’s good for stocks and bad for mortgage bonds. It follows, therefore, that conforming mortgage rates in Georgia rise because rates always move opposite of mortgage bond prices.
Conversely, when jobs numbers worsen, it tends to be bad for stocks and good for mortgage bonds. Mortgage rates fall.
Today, markets are behaving a bit differently.
Despite 290,000 jobs created in April 2010 — nearly twice the expected amount — and a 40 percent upward revision of March’s numbers, mortgage rates are essentially unchanged.
In a normal environment, rates would be higher. Today is not normal.
Today is a departure because, for all of the jobs report’s import to Wall Street, it’s less important to markets than what’s happening in Greece right now.
Greece is struggling to meet its debt obligations and its citizens are rioting.
Until a debt solution for Greece is made that sticks, unrest in the region will drive safe haven buying both domestically and abroad. U.S. mortgage bonds will gain on that movement because mortgage bonds are “safe”, and mortgage rates will fall.
Indeed, this is exactly what’s been happening since the start of April. Mortgage markets have been rallying for 5 weeks.
So, today’s jobs news is terrific for the economy and mortgage rates should be rising because of it. But, they’re not. Consider taking advantage — lock in a rate.
Now is a GREAT time to Buy a Cabin For Sale in Blue Ridge, or a Home For Sale in Blairsville. Rates are low, and unfortunately for the Seller’s out there, so are prices. Please Contact Me today, or you can call me now at 706.994.8686. I look forward to hearing from you soon.
Make it an AWESOME day!
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The Federal Reserve adjourns from a scheduled, 2-day meeting today. It’s one of 8 scheduled Fed meetings for 2010.
Upon adjournment, Fed Chairman Ben Bernanke & Co. will release a formal statement to the market. In it, the Fed is expected to announce “no change” in the Fed Funds Rate.
The Fed Funds Rate is currently in a target range of 0.000-0.250 percent.
The Fed Funds Rate is an inter-bank lending rate. It’s also the basis for Prime Rate, a consumer interest rate on which credit card payments are based, among other consumer loans. Prime Rate is equal to the Fed Funds Rate + 3 percent. Credit card rates, therefore, will likely stay flat today, too.
Mortgage rates, however, should change. Possibly by a lot. The 30-year fixed mortgage does not correlate with the Fed Funds Rate (as shown in the chart at right).
The reason mortgage rates will change today is because, in its statement, the Federal Reserve will highlight various parts of the economy, identifying strengths, weaknesses and probable threats to growth.
These observations influence investors with a stake in bond markets and future returns and, with Wall Street on edge right now — unsure of whether recent economic growth is a longer-term trend or a short-lived blip – mortgage rates could shoot higher or they could drop, depending on how traders interpret the Fed.
It’s a difficult time to be shopping mortgages in North Georgia.
Further complicating matters is Greece’s recent debt downgrade to junk status. A small contagion fear is budding worldwide and, as a result, the flight-to-quality has picked up steam. Mortgage rates are down because of it but could reverse higher at any moment.
Therefore, if you’re actively shopping for a mortgage today, it may be prudent to lock your rate ahead of the Fed’s announcement and any major market reversal. Mortgage rates may fall today, but there’s very little room for them to fall. This is, however, a lot of room for them to rise.
The Fed adjourns at 2:15 PM ET. Call your loan officer to lock your rate.
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Mortgage rates and home affordability have improved lately, thanks to an unlikely ally — Mother Nature.
In the 7 days since Iceland’s Eyjafjallajökull erupted, ash clouds have grounded planes, disrupted businesses, and stranded exports in warehouses worldwide.
It’s a drag on commerce that’s spilled over onto Wall Street. As experts debate the potential for future seismic activity, traders are taking some of their investment risk off the table.
In trading circles, it’s called “safe haven buying”. When the market gets cloudy, investors often move their cash into relatively safe assets. This includes government-backed securities — mortgage-bonds among them.
Demand for bonds rise, pushing up prices and driving down rates.
Conforming and FHA mortgage rates in the North Georgia Mountains touched a 3-week low earlier this week.
Volcanic eruptions and like natural disasters remind us: mortgage rates change for all sorts of reasons. Some we can predict, most we cannot. There’s literally thousands of influences on the U.S. mortgage market.
If you’ve been shopping for a home or floating a mortgage rate, luck’s been on your side. However, as ash clouds dissipate and business resumes worldwide, investors will regain their collective appetite for risk and safe haven buying will reach its natural end.
When that happens, mortgage rates will rise.
Therefore, use the seismic uncertainty to your advantage. Consider locking your mortgage rate sooner rather than later — while rates are still low.
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