Have you noticed that mortgage rates slowly dropped these past few months? Look at this chart of mortgage bonds. We started off the year around 99.25 and are presently just below 103. This means that the mortgage bond market gained about 4% in value. Stated differently, it might have cost a consumer 2 points to get a 4% rate in Januray, 2014 while today, that 4% rate might result in a lender credit of 2% to the borrower.
So what is making mortgage bonds hold their value? Why haven't rates risen is what seems to be obvious commodities inflation? Three contributing factors might be keeping mortgage rates below 4%:
1- The Federal Reserve doesn't seem to be in a hurry to raise the federal funds rate any time in the near future. There was concern that Fed Chair Yellen might lobby the Board of Governors for a rate hike this fall but her Spring testimony suggests that she sees "slack in the labor market".
2- Traders aren't buying into the headline data suggesting a strengthening economy. Traders and Wall Street economists are doing a bit more homework, rather than buy the economic headlines, and findng conflicting data. This doesn't mean that the headline data is being intentionally manipulated but it does mean that traders think the reported data to be narrow.
3- Finally, the world is a pretty scary place right now--there is a lot of geopolitical angst out there and that causes world wide capital to funnel into US Treasury bonds. Consider these geopolitcal events: ISIS/ISIL is beheading people, Israel and Hamas are back at it again, Russia darn near invaded the Ukraine, and there is a world wide Ebola scare. That's a whle lot of angst.
Bonds are a funny financial instrument. World conditions change, data reverses itself, and the Fed changes outlooks like the weather in Denver. Conditions could reverse themselves quickly and mortgage rates could start risng. For now, we're at a neutral bias about mortgage rates. That means we're not in a hurry to lock rates but we're no necessarily floating. We thing mortgage rates will stay stable...for now. If that changes, we'll be reporting forthwith
Realty One Group - Eastvale, CA
Broker, Realtor and Investor
Brian,
Thanks for sharing about these factors in keeping interest rates low. This is important for the real estate market to remain healthy for sure!
Sep 08, 2014 06:25 AM
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Brian Brady
Tampa, FL
Glendale, CA
Brian - Thanks for the great analogy on three things may keep mortgage rates below 4.0% in September.
Sep 08, 2014 09:02 AM
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Brian Brady
Tampa, FL
CENTURY 21 Peak, Ca BRE# 01489453 - Upland, CA
REALTOR, CDPE, Upland, CA
Brian,
Thanks for the information. Might be interesting for you to compare your San Diego numbers with other areas like the Inland Empire (Upland area) or Los Angeles County/City.
Sep 08, 2014 09:41 AM
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Brian Brady
Tampa, FL
Matthews Capital Markets - Tampa, FL
858-699-4590
Brad Rachielles rates don't vary much in Southern California. It would be safe to assume that my observations are transferrable to all of California
Sep 08, 2014 10:17 AM
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel
Matthews Capital Markets - Tampa, FL
858-699-4590
And just as quickly as you can snap your fingers, the bond market drops over a half a point. Conventional rates will be over 4% today; government rates are still below that level
Sep 10, 2014 12:10 AM
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