Extreme volatility in the bond market has been evident since the beginning of May. Mortgage backed securities have traded lower by over 300 bps since May 1, 2013. Rates have increased an average of .625% for conventional programs during that time. Thirty year rates that were achievable below 4% for well qualified borrowers are now in the mid 5s. This equates to an extra $89 per month on a $250,000 home loan, easily enough to disqualify marginal borrowers with high debt to income ratios.
Gross domestic product reports for the first quarter show that US economic growth is far below expectations; 2.4% growth was widely expected and 1.8% was reported. As a result, the bond markets are reversing their downward trend. Mortgage rates will trend lower today as a result absent offsetting fundamental developments. Mortgage seekers are finding their heads are swimming in uncertainty. Lenders are having great difficulty in deciding when to lock rates for their clients.
Our advice is to keep today’s rates in historical perspective. Ask your parents if they would have locked 4 1/2% fixed when they were refinancing in the 80’s. Looking at a real estate transaction purely on the basis of rates is myopic at best. Remember the benefits of American homeownership: security, wealth building, tax avoidance, social opportunity, community participation, etc. Now is the time to close!!