Mortgage rates rise as yield curve reverts to normal shape
The spread between the 3 month (3M) and 10 Year (10T) Treasury yields, which gained so much attention two weeks ago when it inverted (meaning the yield on the 3 month Treasury was greater than on the 10 Year; read Treasury yield curve inverts: what it means for the housing market ), actually lasted just 5 days before reversing, as the yield on 10T increased to 2.5%, largely on evidence that the US economy continued on the path of steady, albeit slow, growth. Meanwhile, inflation remains subdued.
The result is that the cost of a 30 year Fixed rate Mortgage (FRM) edged up a little last week to 4.08%. One might have expected the rate to be higher; remember the rule of thumb is the yield on 10T plus 1.7%, which would imply a FRM of 4.2%.
It appears that mortgage lenders may have held rates down to encourage borrowing. If so, they were successful as Freddie Mac reported: “Purchase mortgage application demand saw the second highest weekly increase over the last year and thanks to a spike in refinancing activity, overall mortgage demand rose to the highest level since the fall of 2016.”
At a time when the rest of the world is suffering from a significant slow down in economic activity, the US economy continues to grow steadily. Chains has already started to stimulate its economy and others may need to. The big potential positive is a trade deal with China. Depending upon what was accomplished, such a deal could remove the self-inflicted damage that tariffs have imposed on the US economy.
Forgive me if this gets boring, but for the third time in recent months (after the stock market’s sharp sell off in December and following the rally in the first quarter this year) I repeat that: “the likelihood for 2019 is a slowing, but still growing, economy and a stable housing market.”
And it is still possible to get a mortgage for around 4% (call me for an introduction to a lender offering a 30 year mortgage with no points for 3.99% up to $2 million).
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