Mortgage Rates and Forecasts

2019
Conforming Mortgage Limits raised for 2020
The Federal Housing Finance Agency (FHFA) has announced the maximum conforming loan limits for mortgages to be acquired by Fannie Mae and Freddie Mac in 2020. In most of the U.S., the 2020 maximum conforming loan limit for one-unit properties will be $510,400, an increase from $484,350 in 2019.

This is Not 2008 All Over Again: The Mortgage Lending Factor
Some are afraid the real estate market may be looking a lot like it did prior to the housing crash in 2008

Why are mortgage rates rising?
As expected, the Federal Reserve (Fed) lowered its Fed Funds Rate (FF) this week by 0.25% to 2.0%. What does this mean for mortgage rates and why are they rising? Five charts explain the factors driving mortgage rates.

Mortgage applications jump as rates rise
As so often happens, mortgage applications have jumped in the past week as rates have risen after falling for so long.

Mortgage Rates are about to rise
While the 30-year Fixed Rate Mortgage rate increased this week from 3.49% to 3.56%, the yield on the 10-year Treasury (10T), which tends to drive the rate on the 30-year Fixed Rate Mortgage (FRM), jumped sharply later in the week and this will likely lead to a sharper increase in the FRM reported by Freddie Mac next Thursday.

Mortgage rates drop to 3.5%
In last week’s Why aren’t mortgage rates even lower? I wrote: “History suggests that either the yield on the (US Treasury 10-year Note) 10T is going to rise or the (30-year Fixed rate Mortgage) FRM rate fall.” Both occurred this week, with the yield on 10T increasing 7 basis points (0.07%) and the FRM rate dropped another 9 basis points (0.09%) to 3.49%.

Why aren’t mortgage rates even lower?
That might sound like a strange question when the latest Freddie Mac 30-year Fixed Rate Mortgage (FRM) rate is 3.58%, down from 4.5% at the beginning of the year and nearly 5% last Thanksgiving. And at the end of last year most pundits were forecasting that the FRM would breach 5% in 2019.

Mortgage rates drop again
Mortgage rates dropped again this week, as bond markets continued to reflect the slowing global economy and growing fear of a recession.
https://wp.me/p2SYWq-53L FHA eases rules for condo mortgages
As of October 15, the Federal Housing Administration (FHA) will insure mortgages for selected condominium units in projects that are not currently approved.

FHA eases rules for condo mortgages
As of October 15, the Federal Housing Administration (FHA) will insure mortgages for selected condominium units in projects that are not currently approved.

Are mortgage rates headed to 3%?
At a time when the economic outlook can change in the time it takes one man to type 280 characters, it is really hard to make forecasts. Most economists and businessmen would say that uncertainty slows investment and there is plenty of uncertainty at the moment. To get to a 3% FRM, the yield on 10T would have to drop to around 1.25%. In July 2016 it reached 1.37%, so it is not impossible. Is it likely? Hand me my crystal ball – oh it’s gone all cloudy.

Why are mortgage rates plummeting?
Freddie Mac’s national average 30 year Fixed Rate Mortgage dropped to 3.99% this week, but with interest rate falling sharply later in the week that number is likely to drop further this week, perhaps to 3 7/8%.

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%.

Opportunity to refinance your mortgage
If you bought a house in 2018 the chances are that your mortgage rate is in the range of 4.5 – 5%. For most of 2018 it looked as though rates were headed on an upwards path and buyers had no alternative but to pay the higher rate.
And then rates collapsed, as per the chart below

Conforming mortgage limit jumps 14% for Essex County
Late last year, in the midst of the annual turkey celebration, the Federal Housing and Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, announced the new conforming loan mortgage limits for 2019. The conforming loan limit is the maximum mortgage size that Fannie and Freddie are allowed to purchase. Freddie and Fannie are the two government-sponsored enterprises (GSEs) that purchase mortgages, bundle and securitize them, and then sell them to investors through Wall Street and other channels.
Loans above the conforming limit are jumbo mortgages.
For 2019 the conforming limit for most of the country increases 6.9% (the amount the FHFA index of home prices increased from Q3 2017 to Q3 2018), raising the new ceiling to $484,350.

2018
Is a recession coming soon?
In 1936, British statesman Sir Austen Chamberlain (half-brother of Neville Chamberlain), made a speech in which he said: “It is not so long ago that a member of the Diplomatic Body in London, who had spent some years of his service in China, told me that there was a Chinese curse which took the form of saying, ‘May you live in interesting times.’ There is no doubt that the curse has fallen on us.” “We move from one crisis to another. We suffer one disturbance and shock after another.”

The last comments seem aptly to reflect the last few days and weeks of 2018.
Let me address one important question: is the stock market, which has now declined almost 20% from its high earlier in the year, telling us that a recession is coming soon, or is it just correcting from a sugar high after the huge stimulus from tax cuts and Government spending increases?

Why have Mortgage Rates dropped?
The Freddie Mac weekly index of the 30 year Fixed Rate Mortgage (FRM) has dropped from 4.94% to 4.63%, a fall of 0.31%, over the last month. Regular readers of this blog are aware that the FRM closely tracks the yield on the Government 10 year Treasury Note (10T) and so will not be surprised to learn that in the same period the yield on 10T has dropped from 3.24% to 2.91%, a fall of 0.33%. And note that the Fed Funds rate, which is controlled by the Federal Reserve, has been unchanged during this period. While it is widely expected that the Fed Funds rate will be increased by another 1/4% this coming Wednesday, this increase will have no direct impact on the FRM, although it may well have on Adjustable Rate Mortgages.

Mortgage rates head for 5%
The yield on the US 10 year Treasury Note (10T) jumped sharply in the later part of the past week, a move which will cause the 30 year Fixed Rate Mortgage to move up again in the coming week, approaching 5%.

No, rising mortgage rates do not mean home prices will fall
“While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price. Exhibit 6 shows the Freddie Mac National House Price Index from 1990 to June 2017. It is unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates.”

Mortgage rates: Relative vs Absolute
It is only in recent years that the mortgage rate has dropped below 5%.

What will happen to Home Prices in the Experimental Economy?
Let’s try to compare the economy in a recession to a car pulling a trailer, with a full load of passengers, while going uphill. What does the driver do? To offset the gradient and the weight being pulled, she pushes on the accelerator pedal, the extra effort allowing her to maintain speed. And when she gets to the top of the hill? She eases off the pedal so that she can avoid speeding and the risk of losing control.

Now, let’s look at the economy. As we emerged from The Great Recession, the Federal Reserve (Fed), understanding that the economy was facing a sharp incline, had its foot hard down on the accelerator (cheap and plentiful money), dragging the car (economy) with its trailer (unemployment) up the incline.

Why have mortgage rates spiked?
The economy is being boosted by tax cuts at a time of low unemployment, rising inflation and an increasing budget deficit, which will need to be financed by the sale of Government securities. This will push up the yield on 10T which will in turn drive mortgage rates up.

2017
Why mortgage rates may be headed upwards – finally
The US economy does seem to have gathered strength in recent months, with back to back quarters showing 3% GDP growth. It seems likely that Congress will pass some measure of tax cuts and it appears that businesses have started to invest more. Inflation is below the Fed’s target but is also picking up, while unemployment, as officially measured, is extremely low. All these factors suggest that the yield on 10T may continue to increase and that in turn will lead to an

Are mortgage rates going to 5%?
For the last 4 years the MBA has forecast that the 30 year Fixed Rate Mortgage will reach or exceed 5% by the end of the following year. Why has it been so wrong?

Why have Mortgage Rates dropped below 4%?
The key number to follow is the yield on the 10 year Treasury. That will tell you what the market is expecting to happen to the economy. From time to time it will also be affected by geopolitical factors – from Brexit last year to the French elections this weekend, to worries in Syria or North Korea. Geopolitical factors may cause buying of Treasuries, driving down the yield, and mortgage rates may not follow so closely. At those time the spread will tend to increase, but as geopolitical factors fade, that spread has for the last 4 years gravitated back to 1.7%.

Freddie Mac rediscovers link between Mortgage Rates and Treasury Yields
In a statement Freddie’s chief economist wrote: “The 10-year Treasury yield fell about 10 basis points this week. The 30-year mortgage rate moved with Treasury yields and dropped 7 basis points to 4.23 percent.”
Just four weeks ago the same economist wrote: “This week’s survey once again displays the disconnect between mortgage rates and Treasury yields.”

Are mortgage rates headed higher?
For the third time since December 2015 the Federal Reserve (Fed) increased interest rates this week. The increase, like the two prior ones, was 1/4%. What does this mean for mortgage rates? The key is to understand which rates are impacted by the Fed Funds (FF) rate and which are dependent upon interest rates set by the market.

Lies, damned lies and statistics: mortgage rates
Freddie Mac’s chief economist said “ this week’s survey once again displays the disconnect between mortgage rates and Treasury yields”. I’d say there is a pretty clear connect between mortgage rates and Treasury yields

Mortgage rates set to rise again
The Freddie Mac weekly 30 year Fixed Rate Mortgage (FRM) report showed a further drop to 4.09% this week, but this number does not reflect the increase in interest rates late in the week. The yield on 10T increased after this week’s Freddie Mac survey, suggesting that the FRM will increase next week, back towards the 4.20 level.

2016
Mortgage Rates continue to rise – is this the peak for now?
While it is tempting to be a contrarian and suggest that the markets are not allowing for the possibility that 2017 may not turn out as hoped for, I think a more realistic assessment is provided by HSH.com:”absent any truly awful economic news and prospects for worsening conditions (whether here or abroad) we are not likely to see rates below the 4 percent market anytime soon, and perhaps not until the next economic downcycle occurs.”

Mortgage rate outlook after Federal Reserve increases rates
For the second time since the introduction of the iPhone (the first was in December 2015) the Federal Reserve (Fed) increased interest rates this week. The increase, like last year’s, was 1/4%. What does this mean for mortgage rates? The key is to understand which rates are impacted by the Fed Funds rate and which are dependent upon interest rates set by the market.

One reason mortgage rates won’t go up this week
With the near certainty that the Federal Reserve (Fed) will vote to increase interest rates this week, many people assume that mortgage rates will automatically follow. Not so. At least not directly. The Federal Reserve’s decision on interest rates will have no direct impact on fixed rate mortgage rates.

Why the Election drove Mortgage Rates up
We will see if the Republican control of Congress and the White House will indeed lead to the passage of legislation that increases economic growth – but that is what markets are telling us will happen.

Huge jump in mortgage loan limits
Home buyers in Essex County and Suffolk County received a major boost this week with the announcement that the limit for conforming mortgages was being increased by 18% from $523,250 to $598,000.
For a buyer putting down 20% the price of a home that can be financed conventionally – meaning that it can be sold to Fannie Mae or Freddie Mac – jumps by almost $100,000, from $654,063 to $747,500.

Mortgage rates near 4%: no need to panic
As anticipated in my post last week, the rate on the 30 year Fixed Rate Mortgage (FRM) jumped to 3.94% this week, according to the latest Freddie Mac weekly survey. Before we all panic, let’s consider a few facts.

Is this the end of ultra cheap mortgages?
Whether higher rates come from a strengthening economy or higher inflation, a reasonable case can be made that the era of ultra low mortgage rates may be about to end. But current rates under 4% are still historically very low and attractive, especially as a stronger economy would likely boost the demand for housing in market where supply is tight.

Mortgage Rates: Keep Calm and Carry On
While the spread between 10T and FRM is still higher than the average of around 1.7% in recent years, two other factors – the desire by banks to increase profits where they can in a low-interest rate environment, and the absence of buying of Mortgage-Backed Securities (MBS)* by the Federal Reserve – suggest that mortgage rates may well stabilize around these levels for the forseeable future.

Mortgage rates drop again – what next?
Over the last 3 1/2 years the average FRM has been about 1.7% higher than 10T. With 10T at 1.4%, that would imply a 3.1% FRM, but…. part of the reason for the low 10T yield is geopolitical, so I would not expect the FRM to drop that far, unless the 10T yield stabilizes at this level.

What Brexit means for the housing market
So what now? The relevant factor for the housing market is that the vote by the UK to leave the EU should end any discussion about interest rates rising in the US. And however much the Fed claims to be apolitical, it is very unlikely it will raise interest rates as we get closer to the election in November. In fact, it is possible that following Brexit we will see moves to lower interest rates elsewhere and the pressure may build for the US to lower rates again. Thus, today’s very low mortgage rates are not going away any time soon.

Mortgage rates drop again
The Fed was so concerned about being “transparent” and explaining, ad nauseam, its thinking on interest rates in order not to “surprise” the market, that it missed the opportunity to raise rates when the US economy was strong and did so just as it became apparent that the continued weakness in the rest of the world was leading to lower interest rates elsewhere, not higher.
The US economy is doing quite well, but will not be immune to what is happening elsewhere in the world.

Mortgage rates still headed lower
While the US economy is stronger than those of most of other countries, it is growing at only a moderate 2 – 2.5% per annum. Elsewhere there are many headwinds, which make it hard – at least for this observer – to see the basis for interest rate increases in the near future.
Trying to guess the bottom in mortgage rates is like trying to time investment in the stock market – great fun, but rarely successful.
What we can say is that mortgage rates today are extremely low by historic standards and to some extent are offsetting home price increases in the last few years.

Why you understand mortgage rates better than many commentators do
If you read my article and were a journalist you would not have written articles I saw this week with headlines such as “Defying Fed hike, 30-year mortgage rate slips” or “30-year mortgage rate drops in spite of Fed hike”.

What the Fed’s rate increase means for mortgage rates
For the first time since before the introduction of the iPhone the Federal Reserve (Fed) members voted to increase the target rate for federal funds (FF). The increase is 1/4% and was widely expected. What does this mean for mortgage rates?

Is this the end of sub 4% mortgages?
Following stronger than expected employment numbers, the yield on the 10 year Treasury (the bench mark for 30 year Fixed Rate Mortgages – FRM) jumped to 2.34%, bringing speculation that we could be about to see the end of mortgages under 4%.

Mortgage rates likely to remain below 4%
With 4 Fed Members talking this week of not raising rates soon, the outlook is that mortgage rates will remain below 4% for the forseeable future.

Mortgage rates:déjà vu all over again
Well the Federal Reserve did not increase short-term interest rates this week and there was little movement in mortgage rates, which remain under 4% for the 30 year fixed rate (FRM) and close to historic lows

Why interest rates and mortgage rates are falling
• Inflation expectations are falling due to a strong dollar and collapsing commodity prices.
• Soft global growth and low interest rates abroad make U.S. yields relatively attractive.
• The market has already discounted tighter monetary policy.
• Longer term expectations for economic growth are muted due to demographic trends.

Mortgage rates dip below 4% again – where next?
After seven weeks above 4% the 30 year FRM has dropped below that level. What will happen to mortgage rates when the Federal Reserve finally raises rates?

Mortgage rates are rising…
The temperature’s rising….and so are mortgage rates, with the 30 Year Fixed Rate Mortgage (FRM) back to its level at the beginning of the year.

Is it time to consider an Adjustable Rate Mortgage?
I have a confession to make: I have never used a 30 year fixed rate mortgage in 20 years of owning homes in the US. And my jumbo mortgage, which is based on 1 year LIBOR, has just reset to 3% and would be at the same rate today as the 1 year LIBOR rate has not moved over the last month.

How to refinance to today’s low mortgage rates when you don’t qualify
Many borrowers would like to refinance to take advantage of today’s low rates but for a variety of reasons – from being under water on their loan to owning a condo in a mixed use building – do not qualify.
Now there’s a Do It Yourself solution, which takes just a few minutes.

Would you like free college tuition with that mortgage?
It’s that time of year when college choices have to be made – and financing decisions also – and so I would like to update an article I first wrote a couple of years ago.
What is the difference in interest payments between a 15-year and 30-year mortgage on a $500,000 loan?
Go on, guess. $25,000? $50,000? That sounds like a lot, but it’s not even close.

5 mortgage predictions for 2015
The Federal Savings Bank, despite its name, is a private bank. It has just released the following predictions for 2015:
– mortgage rates will remain low in 2015, with the Federal Reserve hesitant to raise rates
– mortgage application volumes will increase, driven by low rates and improvements in the job market
– refinancing activity will increase
– slow international growth will keep US interest rates low
– prospective home buyers may be more confident about entering the market

Mortgages: another last chance to lock in low rates
A funny thing happened on the inevitable path to higher mortgage rates: they went down again, back close to the lows for the year. Bear in mind that a year ago the 30 year rate was 4.40%.

Have mortgage rates bottomed?
Mortgage rates have moved up recently, largely reversing the drop experienced in January when geopolitical factors – the usual suspects, Greece and Russia – contributed to a drop in the yield on the US 10 year Treasury from 2% to 1.7%. That yield has now recovered to 2%, and the 30 year mortgage rate is more or less back to where it was at the beginning of the year, depending on which survey you read (see below for details and comments).

2015
The Mortgage Mistake?
Will Congress change the mortgage interest deduction? Does it encourage home ownership? Is increased home ownership still an appropriate goal?

Mortgage Rates: how low can they go?
The 30 year mortgage rate is well below 4%. What is driving the move to lower rates?

2014
3% down mortgages from Fannie Mae are back
Fannie Mae has announced its new 3% down mortgage program for qualified first-time home buyers who “may not have the resources for a larger down payment.”

Mortgage loan limits increase in Essex County
In 5 MA Counties – Essex, Middlesex, Norfolk, Plymouth and Suffolk – conforming loan limits for mortgages sold to Fannie Mae and Freddie Mac in 2015 will increase from $470,350 to $517,500 “because those counties experienced increases in local home values.”

Mortgage Rates drop to 3.66%
The 30-year national average mortgage rate started 2014 at 4.5% with forecasts that by year end the rate would reach over 5%. In fact the rate in January 2014 was the highest for the year and ended 2014 at 3.87%. It has dropped further to 3.66%.

The outlook for mortgage rates in 2015
Fannie Mae this week cut its forecast for the average mortgage rate for 2015 from 4.5% to 4.3%, which compares with the current national average of around 4.1%.
It is worth bearing in mind that a year ago the Mortgage Bankers Association (MBA) forecast that the 30 year mortgage rate would reach 5.1% by the end of this year.

Mortgage rates: what happened to 5%?
As we head into the Fall selling season it is worth pausing to reflect on where mortgage rates stand and what the outlook is. Well the second is easy: we don’t know with any confidence. What we do know is that forecasts of rates hitting 5% or more this year have proved pessimistic despite the improving US economy.

Do mortgage rates and sales volume really drive home prices?
Conventional wisdom is occasionally right, but I like to query it.
Let’s look at two widely quoted “facts” in real estate: that higher sales are a sign of a healthy market; and that mortgage rates drive prices.

Are mortgage rates really going to jump this year?
Mortgage rates have dropped by nearly 1/2% this year, bringing into question forecasts that the 30 year rate would rise to over 5% by year end.

2013
Mortgage rate forecast to rise to 5.1% in 2014
This time last year, when the 30-year mortgage rate was under 3.5%, the Mortgage Bankers Association forecast that it would rise to 4.5% by the end of 2013. That is very close to current mortgage rates so with that track record their forecast for 2014 bears noting.
MBA is forecasting a rise to 5.1% by the end of 2014 and a further rise to 5.3% by the end of 2015.

Jumbo mortgages on sale
A strange thing is happening in mortgage markets: jumbo loans (typically, those above $417,000) are being offered at the same rate as conventional loans and in some case for even less.

Mortgage rates drop as Fed blinks
On Wednesday, when it was widely expected that the Federal Reserve would announce plans to start reducing its purchases of mortgage backed securities (MBS)* this month, it surprised the market by announcing that the start of the slow down – the taper – would be delayed. The result was a drop of about 1/4% in mortgage rates.
This post includes a table showing the relationship between 30 year mortgage rates and the yield on the 10 year Treasury.

Outlook for mortgage rates
Fear of the impact of a change in the Fed’s buying of mortgage backed securities on mortgage rates my be overdone. This is because the volume of new mortgage origination has declined as mortgage rates have moved up. In fact the Fed might end up buying a bigger percentage of a smaller market.

Are higher rates slowing the housing recovery
July often sees a change in market tone. Those who have already sold their home know they need to find somewhere quickly, increasing their urgency. New buyers, however, are now quite likely to decide to wait until the Fall as the chances of being able to move in by Labor Day are diminishing. And sellers have to decide if they want to be on the market in the “dog days” of August, or wait until after Labor Day. And then this year, of course, there has been the added factor of the jump in mortgage rates.

Putting the recent mortgage rate increase into perspective
One week the headlines are shouting  that the recent recovery in home prices is creating the possibility of a new bubble; the next that the spike in mortgage rates is going to kill the recovery in prices and sales.So perhaps a little perspective is called for.

2012
Refinancing – don’t make just the minimum payment
The reason my website includes a mortgage calculator that shows the amortization table is to demonstrate just how expensive it is to borrow money over 30 years. It is rather like paying only the minimum on a credit card. In fact, a 30 year mortgage pays down just 3% of the principal in the first year.

Mortgage rates to rise 1%
“We expect that mortgage rates are likely to stay below 4 percent through the middle of 2013, and will increase gradually as the economy improves and finish around 4.4 percent in the fourth quarter of 2013.”

Mortgage rates to rise 1% in 2013
“Don’t assume that rates will either go lower still or that they will necessarily stay this low for as long as the Federal Reserve is currently saying. If the economy does strengthen from here, interest rates my move up sooner than expected.”

If you – or somebody you know – are considering buying or selling a home and have questions about the market and/or current home prices, feel free to contact me on 617.834.8205 or Andrew.Oliver@SothebysRealty.com.
Andrew Oliver is a Realtor with Harborside Sotheby’s International Realty
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty
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