While all of us are self-quarantining and keeping adequate social distance, we thought our readers would like to know how the mortgage market has been affected by the economic upheaval caused by the coronavirus pandemic. A very respected analyst, Matthew Graham of Mortgage News Daily, said in his column on March 19, 2020, that “Today (3/19) was the most volatile day in the history of the mortgage market in many regards.” Graham bases his analysis on that day’s mortgage bond market, which pin-balled through a huge range of prices during the day, and actually changed direction massively (up to down or down to up) five separate times. In other words, your available rate went up or down massively five times during a single trading day.
Just two weeks ago we reported that mortgage rates were at 30+ year lows. And they were for a few days. Then they shot up as the markets turned chaotic. The Fed recently cut short-term rates to near zero, but more importantly for rates they also started buying mortgage bonds, some $52 billion worth on Thursday and Friday in order to inject liquidity and stability into the market. When you add the fact that the stock market was tanking, everything pointed to lower rates. Instead, mortgage rates moved significantly higher!
In the simplest of terms, the market is experiencing a flight to cash. Typically, investors react to bad economic news by moving from stocks to bonds, thus pushing rates down. Not now. Investors are moving to cash. That means there are many more sellers of mortgage bonds than there are buyers, which depresses bond prices. Lower bond prices = higher rates.
On the plus side, the mortgage market is still functioning, and transactions are proceeding (with appropriate health safeguards). With the Fed doubling down on its bond buying efforts, rates have come back down substantially as I write this on Monday. Tomorrow may be another story. Margie and Troy are still working and so RMC continues to serve our clients every day. Of course, we are not meeting clients face to face, but we have a number of resources available such as e-signature, video conferencing, secure document uploads, and good old email and phone calls.
Steven H Hofberg, Operations Manager
Happy New Year! We said goodbye to 2019 and now welcome 2020 and
a new decade. Predicting the housing economy is difficult anytime, but even
more so given the trade and geopolitical uncertainties that will continue in
2020 as well as the national election coming up in November.
However, there is some consensus on a few key measures among
both industry players (such as financial institutions) as well as the
governmental mortgage giants Fannie Mae and Freddie Mac including:
Mortgage rates, which
dropped from 4.50% to 3.75% during 2019, will continue to decrease, but only
modestly. They are expected to reach approximately 3.60% in 2020.
Housing activity will
show an uptick, with existing home sales up 5% year over year, to approximately
5.5 million sales per quarter in 2020.
are expected to remain steady in 2020, with purchase loans becoming a larger
percentage of total originations.
Tight inventories of
homes for sale will continue to push home prices up, especially in urban areas
like the DMV. Expect the median home price to rise about 5% in 2020.
For those contemplating changes to their housing or mortgage
situation, the most important factor is your personal financial (and
non-financial) goals. How your goals relate to the market is where we can help.
Contact Margie to discuss how you can benefit from what looks
to be a stable market in 2020 (at least for now.)
Wishing everyone a happy and healthy 2020!
Some of you have been asking “what is an ‘inverted yield curve’
and how does it affect me personally?” The news cycle has been filled with
commentary about it lately. Economists generally agree that an inverted yield
curve can signal a coming recession, but not always. All recessions have been
preceded by an inverted yield curve, but not all inverted yield curves have led
A yield curve shows the relationship bonds with different terms
have regarding their yield. Ordinarily, you want a higher rate of return for
buying a bond (or a CD) with a longer term. Two benchmark bonds are the US
2-year bond and the US 10-year bond. The 10-year bond will almost always offer
a higher rate of return than the 2-year bond, due to the increased interest rate
risk over a much longer period. However, last week the yield on the 10-year
bond fell below that of the 2-year bond. Needless to say, people became
This is the “safe haven” reaction to uncertain times. Staying with
economics, many analysts are looking at continuing trade wars and the looming
mess of a Brexit (among other global tensions) for creating worry in the
investment community and board rooms of major corporations. Consequently, there
is a move from stocks to bonds, which drives down interest rates.
The silver lining: mortgage rates tend to track the 10-year bond
pretty closely. Right now, those rates are really good. If you have been
considering buying a home or refinancing, it’s time to take advantage of this
Bond Market Weakness Pushes Mortgage Rates Lower
From the RMC Newsletter dated June 4, 2019
Domestic financial headwinds and trade disputes, particularly the
huge one between the US and China, have investors moving into “safe havens”
like US Treasury bonds. The yield on the benchmark 10-year Treasury bond
settled on Tuesday of last week at 2.268%, its lowest close since September
2017. Investors, analysts, and the Fed itself look to Treasury yields as a
barometer of economic sentiment. Bond yields also factor heavily in the cost of
debt for all types of borrowers, including home buyers. Few analysts see a risk
of imminent recession, but many are predicting slower growth primarily due to
disruptions of global trade caused by higher tariffs.
This economic stew does have its positives, one of which is its
effect on mortgage rates. They generally track the 10-year bond yield, which
has been falling substantially over the past few months. The impact on rates
has likewise been substantial, falling a full percentage point in the last six
months. This has made home ownership more affordable and it has opened the door
to more borrowers who wish to refinance to lower their rate, take cash out, or
recast an ARM that has or will soon adjust upward.
For mortgage origination firms like Residential Mortgage
Center, it is necessary to focus primarily on the short term. In other
words, we constantly monitor current interest rates, terms, and conditions, all
of which have the most direct effect on our clients as they seek mortgage
financing. Rates have fluctuated lately, but in a relatively narrow
range. So despite the volatility of several market affecting factors, such as
geopolitical instability, trade wars, fluctuating oil prices, and of course,
the domestic political dystopia we find ourselves in, rates remain at
historically low levels.
I would argue that much of the credit should go to the
stabilizing influence of Fannie Mae and Freddie Mac, the two government
sponsored/owned mortgage giants. Yes they suffered greatly (some
suffering was indeed self-inflicted) during the financial crises of ten years
back, and needed a bailout from the taxpayers, but since then they have
deposited billions of dollars a year directly into the US Treasury.
Steven Hofberg, Operations Manager
For those not familiar with how Fannie and Freddie operate,
you should know that they do not make mortgage loans, but instead buy loans
from lenders and package them as bonds which are then sold to institutional
investors. Most economists believe that like most other developed
countries, the US would not have a 30-year fixed mortgage product without their
unique ability to match banks with investors such as pension funds looking for
steady long term yields. So with that introduction, I would like to focus
on a long term issue, the future of Fannie and Freddie (F&F).
Senior administration officials are now discussing how to
overhaul our mortgage finance system with “a great sense of urgency.” And
Treasury Secretary Mnuchin recently said he wants a plan developed in the next
6 months (Wall Street Journal April 15 2019), which may be overly
ambitious. There is a range of opinions on how to accomplish a reform,
from merely making changes to F&F, all the way up to eliminating them
completely. In the middle is a plan to keep F&F, but reduce their
footprint by creating incentives for private institutions to take on a larger
role in the mortgage market.
It is my belief that greater participation by private
institutions would be good for all stakeholders, especially borrowers, by the
creation of new products as well as the positive effects of greater
competition. But the reformers have to be careful. If F&F are
eliminated, or gutted so severely that they exist in name only, we risk turning
the mortgage market over to the likes of JP Morgan Chase, Citigroup, Bank of
America, and other financial giants. Needless to say, they are unlikely
to support the public interest as much and as successfully as F&F have over