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Mortgage rates fell. Then mortgage rates went up. Then mortgage rates fell again.
What’s going on there? Bank Runs, Bank Fails, No More Fed Rate Hikes?
This is called volatility, which leads to volatility in everything from stocks to bonds and mortgage rates.
So if you’re not sure what’s up, join the club. No one knows completely, which is why you’re seeing quite a bit of movement in all directions.
And for this reason, you need to be on top of your game if you are even remotely thinking of taking a home loan.
Keep an eye on the stock market and 10-year bond yield
Mortgage rates can be very complicated, but there are a few simple things you can do to predict their direction.
Generally, if the stock market is falling, mortgage rates are falling as well. Both have a tendency to go together.
Thinking bad news and/or economic uncertainty drives stocks and mortgage rates down.
Conversely, bond prices tend to rise as investors seek so-called “safe haven” bonds. This pushes the relative yield down.
A good bellwether bond yield to keep an eye on is the 10-year Treasury because its maturity is similar to that of a home loan (repaid over a decade or more).
it was with paid discount points,
Bad news is good news for mortgage rates
Mortgage rates tend to thrive on bad economic news. So if the stock market declines, or unemployment rises, mortgage rates should theoretically improve.
Basically, keep an eye on the major economic headlines. If more banks fail and/or the stock market craters, it is likely that the 30-year fixed will become cheaper.
The one wrinkle here is that if things get too bad, it could disorganize the secondary market for mortgages and put lenders under stress.
So you want just the right amount of bad news to get the banks/lenders to work, driving down interest rates.
Recent bank failures coupled with contagion fears have served as bad news recently.
However, banks and lenders don’t want to get caught on the wrong side of things. So my guess is they’ll continue to price conservatively.
They are not going out of their way to cut rates for fear that things could turn quickly. It’s all still a very fluid situation.
There’s just too much rate spread
This brings me to another important point. With the market in turmoil, mortgage rates are seeing a huge range.
In other words, you can get into 5s with one bank and 6% at another. Each company may have its own comfort level and appetite.
This means you will still have to shop around to make sure you get the lender with the lowest price from the competition.
When markets are calm, rates exhibit less spread, so it doesn’t matter much.
If you don’t believe that, just visit the websites of some of the big banks and/or mortgage lenders. Check out their daily mortgage rates.
You can also see rates as low as 1% depending on the companies and product type.
Jumbos cost much less than conforming loans
Another thing to consider is jumbo versus analog pricing. During normal times, conforming loans that meet Fannie Mae and Freddie Mac’s standards are cheaper than jumbo loans.
But jumbo loans have been the cheaper option for a while now. At a large bank, I’m looking at a 30 year jumbo at 6% and a 30 year conforming loan at 5.375%.
This is a huge difference. Of course, you usually can’t control your loan amount, but if you’re close to the limit, jumbo may be the cheaper route.
FYI, the 2023 conforming loan limit is $726,200 for a single unit property, and even higher in high-cost areas.
Along those same lines, purchase loans are worth much less than refinance loans from many banks.
However, this can vary from company to company, so again, put in that research and shop around.
Your rate quote may only be good for a few hours
In case you weren’t aware, mortgage rates change daily. And this time, they can change even more rapidly. Intraday is not out of question.
There is a lot of uncertainty at this point of time. While not as volatile as stocks, mortgage rates change each day depending on market conditions.
So if you get a quote, ask how long it’s good for. And even then, don’t expect it to be available tomorrow or even later.
Mortgage rates have been seen throughout the week, with some gaining and others losing, depending on whether they are locked or not.
Remember, until your mortgage rate is locked in, this is just a quote, subject to change at any time.
It’s kind of like buying a stock. Its price is subject to change until you submit and actually buy it.
In terms of predictions, if you believe that things will get worse economy-wise, mortgage rates may continue to decline.
But if you believe the Fed will raise rates next week and things return to normal, mortgage rates could be headed back toward 7%.
Either way, current conditions are not for the faint of heart, although good opportunities (due to pricing swings) are going to be plentiful.
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