Mortgage Rates Move Higher As Treasury Yields Increase

Treasury yields have been climbing higher since fall 2010.  As a result, mortgage rates have been moving higher as well—and have topped 5% for the first time in months.   Mortgage rates move in tandem with Treasury yields; specifically 30-year mortgages track 10-year bonds. While rates are currently still near historic lows and very affordable, they are predicted to go up in 2011, perhaps to 6%.

Banks: Credit Restrictions Too High

Banks agree with Realtors that credit is too tight.  In a recent National Association of Realtors podcast, NAR President Ron Phipps discussed his recent meetings with Citibank.  Folks who should be able to get mortgages aren’t getting mortgages…the pendulum has swung too far. 

Things will loosen up again–but no one is sure how soon.

Eugene housing market: Stable in Spring 2010

Mortgage interest rates continue to be very low, below 5%, which are some of the lowest rates most home owners have ever seen. Concerns over European finances caused investors to buy U.S. bonds, which pushed the price down; mortgage interest rates follow the 10 year Government Bond.

Longer term trends are less clear. The Government will begin selling its portfolio of 1 trillion dollars worth of home mortgages, acquired in 2009 & 2010, which will push interest rates up. And, Fannie Mae and Freddie Mac continue to need cash infusion, a sign of a weak national housing market. So far, Fannie has lost $145 billion dollars, a sum more than the combined profit it made in the last 35 years.

Home sales around Eugene Springfield were brisk in April, which seemed to be correlated to the expiring tax credit at the end of the month. The big question in the industry was: would sales grind to a stop? They have not and continue to be in keeping with the busy spring season. Prices have remained stable.

This listing of mine sold received an accepted full priced offer within a couple of days of going on the market. Affordable housing continues to be hot in Eugene.

Affordable houses fly off the shelves.

Affordable houses fly off the shelves.

Government stops purchasing mortgages

The Federal Government stopped buying mortgage backed securities yesterday. From 2009 until 31 March, the Gov purchased 1.25 trillion dollars worth of mortgage backed bonds. This kept interest rates on home mortgages at near record lows. Now that the government isn’t buying, it will give more room for private investors to step up. As of yet, interest rates haven’t spiked, and remain around 5%. If the economy continues to improve, rates will probably rise, though.

People are starting to watch interest rates.

Home Mortgage Rates up in June 2009.

One thing I track is interest rates on home mortgages, which have ticked up recently. In general, the lower the rates, the more your house is worth and vice versa. Average interest rate, as reported by the Federal Reserve was 5.42% in June 2009, which is the highest it’s been since November 2008.

A broker friend of mine in Milwaukee says the interest rise has actually stimulated his market because his customers think the end of the low prices may be in sight.


Mortgage Rates Should Remain Low

The Federal Reserve Board announced it’s going to buy ½ trillion dollars worth of mortgage backed securities by June of this year, according to the 2 January 09 WSJ. So what?

This means low mortgage rates should continue in the first half of 2009. The Fed will start buying this month. Our government is in effect purchasing all of the mortgages that banks will make to home owners in the next few months.

Why? The Fed thinks it has to; last year investors shunned CMO’s (collateralized mortgage obligations), turning instead to US Gov. Notes, Bills and Bond, which had the effect of destabilizing our mortgage system. The US Treasury has also recently purchased these mortgage backed securities, so far to the tune of $50 billion dollars.

So, it works like this: you get a mortgage issued by your bank. They in-turn, sell the mortgage to Freddie Mae, who bundles your mortgage with others into a CMO. The CMO is then sold to the Fed and other investors.

So far, it’s working. Current mortgage prices are around 5% for a 30 year, and in the high 4% range for a 15 year mortgage.

Our Federal Reserve Building.  Photo by Dan Smith.

Our Federal Reserve Building. Photo by Dan Smith.

Mortgages at new lows

Mortgage interest rates have dipped to historical lows. Last week, three of my mortgage writing friends were quoting par rates (no buydown) below 5% in Eugene. This was for a fixed-rate, conventional, 30 year loan (my favorite).

Principal and interest payments for a $175,000 loan would be in the $900/month range. These days, lenders are wanting credit scores above 680, at least for the best rates.

My title company friends have said business is increasing, which you might expect with refinances. But, with more rigorous standards for loans as well as potential difficulty in getting properties to appraise-out, the tsunami of refinances hasn’t happened yet.

Lower mortgage rates are bound to help stabilize housing prices. When? My guess is by summer of 2009

Interest Rates Have Plummeted.

Interest Rates Have Plummeted.

Fed cuts rates to zero

The Fed cut federal funds target rate to near zero, down ~1%. The rate was 4.25% last December, and 5.25% Dec. 2006

The announced cut affected short term rates, and things tied to the discount rate, like prime-rate and charge card interest. It didn’t effect mortgage interest rates per se but other Fed activities have, namely, purchasing (and announcing the purchase) of treasury notes, bills, and bonds. Mortgage interest rates are at near historic lows.

The Fed’s announcement makes the rate in the United States the lowest in the Western World. Eventually, this will have an inflationary effect and rates will need to rise. Don’t look for this any time soon.

Fed Target Rate

Fed Target Rate