Mortgage News and Notes

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

 

Posted by Steven Hofberg on March 27th, 2020 2:16 PM

We are not exaggerating one bit! Margie has been in the mortgage business for over 35 years, and she has never seen rates as low as they are today. Various economic factors have pushed the yield on the 10-year Treasury bill to about 1.00%, the lowest in many years. Since mortgage rates track the movement of the 10-year bill fairly closely, the result is nothing less than an unprecedented opportunity for homeowners to refinance their mortgage and potentially save hundreds of dollars each month.

Or, consider the option of refinancing to a 15-year mortgage, and reduce the total amount of interest paid and the number of years left on your mortgage without substantially increasing your monthly payment.

Whatever your situation, now is the time to contact Margie and have her review the numbers with you. She will be happy to show you how you can benefit from some of the lowest rates in memory.

Steven H Hofberg, Operations Manager


Posted by Steven Hofberg on March 14th, 2020 5:35 PM

Mortgage rates are at their lowest level in more than three years. The average rate on a 30-year fixed rate mortgage dropped to about 3.50%, according to figures released last week by Freddie Mac. Not surprisingly, as a result of such low rates we are seeing a very early start to the Spring home buying season. Sellers want to take advantage of the increased buying power of potential buyers that comes with lower rates.

The increased buying power is a direct result of lower interest rates. In just the last 12 months, rates on a 30-year fixed rate loan have dropped a full percentage point. That translates to a mortgage $70,000 larger with the same monthly payment. For potential homebuyers now looking for a home, that additional buying power will come in very handy in a very competitive market. Last year’s purchaser could today make an offer almost $90,000 higher, assuming 20% down. It’s nice to have that in your back pocket when home shopping.

If you are looking for a home, or planning to look, do yourself a favor and contact Margie for more information. She will be happy discuss your personal situation and run some numbers for you. Knowledge is power.

Steven H Hofberg, Operations Manager



Posted in:Rates and tagged: RatesMortgageratespurchase
Posted by Steven Hofberg on February 13th, 2020 12:47 PM

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.

  • Mortgage originations 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!

     

    Steven H Hofberg, Operations Manager

Posted by Steven Hofberg on January 7th, 2020 10:12 AM

2019 started off with 30-year fixed rates right around 5% and expectation was that they would climb and end up in the mid 5’s by the summer. Happily, most of the experts were wrong and rates instead came down to the upper 3’s by the spring and have been holding fairly steady through the fall.

 

The savings for clients have been considerable. If you took out a $500,000 loan in the fall of 2018 at 5.25% and then refinanced in the summer of 2019 at 3.75% you saved around $450 per month! Lower rates also made housing far more affordable which was very helpful in a high cost area like DC. A $3000 per month payment in the summer of 2019 at 3.75% qualified you for $90,000 more house than the fall of 2018 at 5.25%.

 

2019 was not only a wonderful year for mortgage rates but it was a special year for us as well. We added a grandson and future son law to our family!

 

We hope that 2019 was also a productive and successful year everyone. We are looking forward to seeing what 2020 will bring.

 

Happy New Year!

 

Margie and Steve

Posted by Steven Hofberg on January 1st, 2020 3:29 PM

There are a lot of winds swirling around the economy right now, including those from trade, budget, financial markets, and politics. Last month, the Federal Reserve lowered the federal funds rate by another 0.25%, the third rate cut since July. Overall, the economy has continued to hum along in moderate fashion, with some weakening in both actual and projected economic growth rates. Normally a weaker economic outlook would put downward pressure on rates, but the news regarding the China tariffs is considered favorable by the markets, offsetting that trend.

 

In spite of all of the crosswinds, or perhaps because of them, mortgage rates have been mostly steady over the past month. They move a little each way, but have stayed in a fairly narrow range, and remain favorable to borrowers. Fixed rates are in the high 3s for 30-year financing and in the low 3s for 15-year. Of course, rates fluctuate daily so be sure contact Margie for the most current information.

    

Steven H Hofberg, Operations Manager

Posted in:Rates and tagged: Rates
Posted by Steven Hofberg on December 17th, 2019 10:04 AM

Adjustable Rate Mortgages (ARMs) are in the news these days. Not so much about their rates and market share, but on the issue of how the annual adjustments to the interest rate are calculated. Almost all residential ARMs use an index called LIBOR, which is based on a survey of rates major global banks are charging other banks for short-term loans. At adjustment time on your Note, the lender checks LIBOR and adds the margin specified to calculate the new rate that you will pay on the principal balance for the next 12 months. The issue in the news is that the entity that administers LIBOR has, for a variety of reasons, announced that publication of LIBOR is not guaranteed after 2021.

 

Many financial analysts believe LIBOR will be around longer, but for now the search is on for a successor. Fannie and Freddie are interested in SOFR, a measure of the cost of overnight financing between institutions secured by US Treasury securities. There are other indexes whose sponsors are hoping to replace LIBOR as well. The issue for those homeowners that currently have an ARM is that when it comes time for the interest rate to adjust, the new index may not behave in the same way as LIBOR has historically. This would be especially noticeable in periods of economic volatility.

 

ARMs already have uncertainty built in relative to fixed rate mortgages. The potential change to a new index within the next few years adds one more uncertainty, although as with any unknown the results could be good or bad. Incidentally, if you want to see how this change will take place, check your ARM note under “The Index” where you will see this language: “If the Index [LIBOR] is no longer available, the Note Holder will choose a new index that is based upon comparable information.” That is very wide latitude for the lender, I would say.

 

Perhaps it is time to evaluate whether a switch to a fixed rate mortgage is the right choice for your circumstances. Contact Margie to discuss your ARM and she will be happy to run some numbers and help you decide your best option.

 

Steven H Hofberg, Operations Manager

Posted in:Refinance and tagged: RatesRefinanceARM
Posted by Steven Hofberg on November 18th, 2019 10:44 AM

The Federal Reserve cut short-term interest rates last week by 0.25%, to approximately 2.00%. As regular readers of our newsletter have learned, short-term rates (in this case the federal funds rate) do not necessarily affect longer term rates such as mortgages. This holds true of the past week; mortgage rates, which have risen slightly in the past couple of weeks, looked at the Fed’s move and just shrugged. Not much movement at all.

 

Factors having a greater effect on mortgage rates include trade tensions, slowing global growth and, currently, some recent positive housing data. This week’s recommendation is simple; it’s not wise to extrapolate from the Fed to the mortgage market. The better strategy is to check with Margie to see where rates stand. She will be happy to run the numbers for you.

Steven H Hofberg, Operations Manager

Posted by Steven Hofberg on September 27th, 2019 2:40 PM

Wow, lots of news over the past few days. And as we always mention in our newsletters, much of that news does affect mortgage rates. As you probably know, rates have gone down recently to a rather stable range in the high 3s. But on Thursday and Friday we had several big shocks to the market, and rates jumped up about a quarter of a percent. That’s a big jump!

 

What happened? Many financial analysts are pointing to two events. First, optimism on future trade talks between the US and China, as both countries delayed tariffs and gave indications of their interest in further negotiations. That helps the stock market, but hurts the bond market. Second - a really huge one - the attack on Saudi oilfields. The attack reduced their production by half, which amounts to 5% of the world’s oil production. This one has caused great uncertainty, to which markets always react badly. Oil prices did spike up on Monday, but most think there is sufficient world supply at least for now. That may change at any time.

 

The moral of this story is that you shouldn’t be complacent about mortgage rates. They are historically volatile. Rates are still very good right now, but there is lots of uncertainty in the market. So, if you are looking to buy or refinance your existing mortgage but haven’t started the process, give serious consideration to moving forward soon.

Posted in:Rates and tagged: RatesRefinancepurchase
Posted by Steven Hofberg on September 18th, 2019 12:34 PM

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 to recessions.

 

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 concerned.

 

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 market.

 

Steven H Hofberg, Operations Manager

Posted by Steven Hofberg on August 22nd, 2019 11:29 AM

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