HBR 181 – What Is Going On With Mortgage Rates?
What is going on with mortgage rates? Many clients have been asking about this recently. This week I talk about why mortgage rates have been so volatile and the impact it has on clients looking to buy or refinance a home.
We have seen a very sharp increase in mortgage rates as of the time of publishing this episode. This is largely due to recent moves taken by the Federal Reserve Bank to fight off inflation. With growing concern over the impact of inflation, the Federal Reserve Bank is taking a number of positions that they believe will help to curtail inflation.
The Fed has indicated it plans to raise rates at a faster pace while also looking to reduce its mortgage holdings. These moves have put pressure on mortgage rates and have amounted to a one, two punch to the bond market. This ultimately translated into higher mortgage rates for consumers.
Rates are off their historic lows and higher than what we have seen the last several years. However, when you look at a larger block of time, they are still at favorable levels for consumers. The last time in most recent history where conventional 30 year fixed rate mortgages flirted with 5.00% +/- rates was in 2018. At that time we continued to see a very robust housing market.
The housing market continues to be fueled by low inventory with many properties still being sold in record time. This is in spite of higher rates and decreased affordability. While some would argue that higher rates may create a housing bubble. I suspect it will likely result in some buyers seeing less affordability and opting to rent. While that may improve market conditions some, strong demand is likely to continue keeping the housing market vibrant and strong.
In recent weeks I have also talked about why an adjustable rate mortgage (ARM) may be a viable option for some clients. You can learn more about adjustable rate mortgages (ARM’s) by clicking here. You can also listen to a podcast I did on ARM’s by clicking here.
If you are in the market to finance a home, my team and I would love to help you. You can find us online at https://www.danmoralez.com or at 616-931-4629.
If you enjoy the podcast and it has helped you, please take a moment to rate and review the podcast. Even better yet, let us help you with your next mortgage.
Dan Moralez
Regional VP – Mortgage Loan Officer
NMLS #709729
All loans are subject to credit approval. Northpointe Bank is an Equal Housing Lender. All Rights Reserved
TRANSCRIPT OF THIS WEEKS EPISODE
DAN MORALEZ:
What in the world is going on with interest rates? We’re going to talk about it in this week’s Homebuyer Radio.
Pat:
This is Homebuyer Radio with home loan expert, Dan Moralez. Dan has been one of the nation’s leading mortgage lenders since 1991. And weekly, he shares with you valuable insight into the home-buying process. Whether it’s your first home or not, Dan will help you have a better understanding of the home-buying process. Let’s get started with this week’s episode. Dan, what do you have for us this week?
DAN MORALEZ:
Hey. Thanks, Pat. It’s Dan Moralez. This is Homebuyer Radio, episode number 181. And it is March 13, 2022. And we’re talking about interest rates this week. We’ve seen just some crazy stuff happening in regards to mortgage interest rates where we’ve seen really wild swings in pricing from one day to another, just a lot of volatility in the marketplace. And that volatility means you’re going to see changes in rates. Sometimes, those changes have been for the good. And other times, they have been against you where market pricing has moved negatively, if you will. And that’s really been the overall trend for really the last several months, has been a strong increase in interest rates over the last several months. And a lot of times, people are wondering, “Well, what’s going on with that? What’s causing interest rates to take these strong moves against me? It’s already hard enough to find a house to buy. But in addition to that, as interest rates are going up, it’s making my monthly payment look higher for a property.” Or in some cases, those higher interest rates are starting to drive down, if you will, the amount of a house that you’re going to be eligible for because you qualify based on a monthly payment.
And the amount of house that monthly payment is able to buy is impacted by interest rates because when interest rates go up, the amount of dollars that you can borrow with that same monthly payment tend to go down. And so that means that the amount that you could be approved for may actually start to diminish with higher interest rates. So, if you are a pre-approved buyer, and you’ve been pre-approved for some period of time, it is probably a good idea to get your pre-approval updated to make sure that you are still looking at the right price point, that you still have good monthly payment information and data to work off of, just because those higher interest rates can definitely have an impact on you. What’s causing rates to go up, right? Well, there’s a number of factors that can impact what’s happening with interest rates. Really, the biggest factor that we’ve kind of seen that really got everything started is really what the Fed is doing in regards to mortgage-backed securities and just increasing rates in general.
Let’s talk about what happened over the last several years. Over the last several years, the majority of the mortgage paper that’s out there was being purchased by the United States government. So, the Fed was going in, and they were actively buying all of this mortgage paper. And that’s why you saw these really great mortgage rates. The government was propping the market up, for lack of a better term. And so what happened is the Fed was buying and buying, and buying, and we saw these really record-low rates of these extended period of times. Then what happened is the Fed came out and said, “You know what? We’re just not going to buy as much, and maybe we’re going to buy less. And maybe we’re not going to reinvest the dollars that we’re getting back from these securities into mortgages.” And this whole tapering that the Fed’s doing is kind of weaning us off of this really cheap money.
Well, that impacted mortgage rates negatively because when the Fed goes through and is kind of tapering their investments in the world of mortgages, that means there’s less of that cheap, easy money in the market, if you will. Okay? Now, you combine that with years of inflation, how do you fight inflation? You fight inflation by raising interest rates and trying to slow inflation. Ideally, you raise rates quickly, and it stops inflation from happening. But you risk other factors or other, if you will, economic impact that can be negative for the economy as well, too. Well, the Fed has said, “Hey, we’re going to go through. We’re going to raise rates maybe four or five times over the course of the next year or so.” And when they talk about that, guess what that does? That causes mortgage rates to go up. So, before the Fed has even gone through an increased mortgage rates … Or I shouldn’t say mortgage rates because they don’t directly increase mortgage rates. But before the Fed has gone through and raised the rate, what happens is mortgage rates have already started to increase in anticipation of that happening, meaning that it’s not like mortgages are waiting for, let’s say, the Fed to actually make that increase happen.
They trade in anticipation of what’s going to happen, which is why you’ve already started to see this really strong move up in mortgage rates against you. Right? And of course, inflation being a bad thing, for somebody who’s investing in these mortgages or buying this mortgage paper, if you will, if they’re buying mortgage paper that has a return of two and a half to three, or even three and a half percent, well, when you have inflation, the value of that investment goes down over time because the interest that they made on their investment just doesn’t go as far as it used to, because of the impact of inflation. So, it makes those longterm mortgages worth less to have as well. Well, if you need to have somebody buy that mortgage paper, they’re going to want a certain amount of return to make the investment make sense. So, inflation is the enemy of mortgage backed securities, which ultimately is where your mortgage money typically is coming from. Now, the other thing that you have is, of course, world events. Anytime you see stuff that’s happening in the world marketplace, that stuff can oftentimes have an impact on mortgages.
Now, sometimes, those impacts are short lived, if you will, meaning that if there’s a period of insecurity that’s in the world, a lot of times, mortgage back securities or the bond market benefits …. Because a lot of money comes into the bond market for a short period of time, and it causes rates to go down for a little bit. And we saw that here recently with everything that was happening in Ukraine with Russia. We saw a flight to safety where a lot of people and a lot of money, if you will, of came into the US bond market, really, for a very short period of time where we saw an improvement in mortgage prices. And then what happened is that money kind of went right back out where the market turned around. Within 24 hours, we saw 100 basis point swing in mortgage pricing, which is huge. That’s almost a quarter percent interest rate swing within the course of 24 hours. Right?
So, before you get upset with your mortgage lender about, “Gosh, how come the interest rates are different than what they were when we started this process.” Please know we have no control over this. We are going along for the ride with you because we are tied to the market just like you are. There’s all of these things that are happening. It is impossible to be able to go through and even shop for a mortgage because people will be like, “Well, I’m going to shop 10 different lenders.” Great. Just know that whatever price anybody gave you is going to change before you could get back to them to lock in, or before you find a house to move forward with. If you take that case, what I was just talking about recently, where there was 100 basis point swing, that’s a quarter percent swing in interest rate over the course of 24 hours.
So, if you came in and I quoted you an interest rate … Let’s just say I gave you an interest rate of 4%. And 24 hours later, that rate may have been 4.25%. That’s how fast it could have changed. Now, maybe you were one of those people that you called me before the rates took a dip. And I told you, let’s just say, 4.25%. And the market dipped to 4% the next day. And you’re trying to shop lenders. It’s like trying to shop gas prices. The price is going to change before you can get to the gas station and fill up your car. So, what you really need to do is you need to make sure you’re working with a competent lender that is following what’s going on with the marketplace. They’re getting live mortgage back pricing, so they know what’s going on in real time. They can properly guide you and direct you. They can give you some good insight as to different strategies that you can work with to be able to benefit you in the process of being able to get a mortgage.
Now, we did an episode here recently talking about whether or not maybe an adjustable rate mortgage could benefit you. For some of you, especially those of you who know you don’t anticipate keeping the mortgage for much longer than, let’s say, five to seven, or 10 years, or you think this house that you’re going to buy is going to be a property that you’re going to keep for no longer than five to seven, or 10 years. one of our adjustable rate mortgage options could be a great option for you. In some cases, those loans have an interest rate that is almost a full percent, or if not over a full percent, lower than what you would get if you took a 30 year fixed. Now, that’s all part of what a good competent lender is going to do. They’re going to talk to you about options in making sure that you have options that are appropriate for your overall financial picture to help you get across the finish line.
Well, hey, given just kind of what’s been going on with the world in regards to mortgage rates, I felt it was appropriate to do an episode, talking about, “What in the world is going on with this stuff, right?” There’s so many more moving pieces to this than what most clients recognize. I wanted to make sure that you were getting good, accurate information. And most importantly, I want to make sure you understand that your lender cannot control what happens with interest rates in the volatility that we’re seeing in the marketplace. You want to make sure you’re working with a good, competent lender that can guide you, educate you, and give you plenty of options to look at to make sure you have the best overall outcome when it comes to getting your mortgage.
Hey, I’m Dan Moralez, America’s mortgage man. Hey, do me a favor. Share this podcast with somebody who could benefit from it. With my friends in the real estate community, good episode to share with your clients to help them understand the impact of what’s going on with mortgage rates and just kind of the back story to it. And if you are a client that is out there, hey, we lend in all 50 states. We would love to help you. We lend throughout the entire country. We do a lot of really unique products and options, and loan structures that would benefit you. And we would love to have you be part of our family of clients and make sure that we take great care of you. Hey, again, I’m Dan Morales. Thanks for listening. Talk to you next week. Bye.
Pat:
Homebuyer Radio is a production of Dan Moralez, home lending expert with Northpointe Bank, NMLS #709729. Dan can be reached at 616-931-4629 or online at danmoralez.com. Thanks for listening. And we invite your questions and show ideas at homebuyerradio.com. All loans are subject to credit approval. This is not a commitment to lend. Northpointe Bank is an equal housing lender, all rights reserved.