WHY MORTGAGE RATES AREN’T FALLING

If you are a frequent reader of our newsletter, you know that we use data — not opinion —  to make our decisions and chart your course. We want to provide you with some of the data that we are privy to so you can run your business more efficiently and plan for the future. Here’s the latest:

• FED LOWERS INTEREST RATE ¼ POINT THIS WEEK: This may help some borrowers, but not homeowners.
• MBS DEFINED: The reason mortgage rates actually increased after the prime rate reduction this week is due to what happens to a homeowner’s mortgage after the closing; it gets resold and packaged into a Mortgage Backed Security (MBS).
• MORTGAGES AREN’T PRICED OFF THE PRIME RATE: Because of the selling of a mortgage and its repackaging into a bond, it trades like a bond at bond rates.
• 10-YEAR U.S. TREASURY BOND RATE: This is the rate you should follow when looking at the direction of mortgage rates. This is because investors in bonds feel that this bond maturity most closely represents the life of a mortgage, since most people sell or refinance within a 10-year period.
• INFLATION IS A FACTOR TOO: With the monthly inflation increases that the US is seeing, bond investors want to factor that into their bond purchase yield too, so they don’t lose money. That’s another contributing factor to mortgage rates not dropping with a Fed rate cut.
• ½ POINT CUT A YEAR AGO SEPTEMBER PROVED WORTHLESS: During the two months following this cut, the 10-year treasury bill yield increased ½ percent and the mortgage rate increased ¾ percent, according to the Wall Street Journal.

What does this mean for all of us? The general state of the economy is going to rule mortgage rates, and therefore affect home sales, which then directly influence our businesses. Don’t let the forecasted two more rate cuts this year change your mindset. Stay the course of the past two years. Unfortunately, we are not out of the woods as things stand right now.

Onward & Upward!

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