Mortgage Rate Watch
Here's What The Fed's 0% Rate Outlook Means For Mortgages and Housing

Mortgage rates are most influenced by the bond market and the bond market is most influenced by the Federal Reserve (aka "The Fed").  So when the Fed says it expects rates to be "zero" at least until the end of 2023, does the same go for mortgage rates?  That would be nice, but unfortunately, that's not how it works.  The Fed dropped its policy rate to 0% back in March--the same place it had been for nearly 6 years after the financial crisis.  Mortgage rates were in completely different territory during that time and they've often moved in the opposite direction since then. With this in mind, how can we say the Fed is so important to the bond market and mortgage rates?  First off, there's a clue in the chart above.  

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Mortgage Rates Vary Widely--Nothing To Do With The Fed

Yesterday's policy announcement from the Federal Reserve had a chance to cause significant volatility for the bond market and the bond market is the chief ingredient in the mortgage rate equation.  But this time around, the Fed didn't cause a measurable reaction in the mortgage market.  

I'm frequently asked whether mortgage rates are 0% since the Fed just kept rates at 0%.  People hear a headline on the news or a radio soundbyte mentioning the words "Fed, rate, zero," and then assume the Fed just made some change that dropped rates to zero percent.  After all why would there be so many news headlines about it if the Fed merely kept its policy rate unchanged?!

It's a fair question in that sense, but understand that the Fed's rate decision will always make the news, even if the rate is the same as it has been since March (and it is).  As such, if mortgage rates weren't 0% for the past 6 months, they wouldn't be zero now.  And in fact, they'll never be zero simply because the Fed Funds Rate is zero.  These are two entirely different rates that apply to vastly different amounts of time and types of transactions.

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What Will The Fed Do to Mortgage Rates?

What will the Fed do to mortgage rates?  This is actually a bit of a trick question.  The Fed doesn't set mortgage rates.  The Fed's policy rate applies to overnight loans between large financial institutions.   The only way it directly influences mortgage rates is by serving as the basis for the PRIME rate.  Home equity lines of credit (HELOCs) are often based on the Prime Rate. 

For all other mortgage rates, charting a connection to the Fed Funds Rate is significantly more challenging.  Indeed, there are many examples of mortgage rates moving in the opposite direction.  In other words, mortgage rates have often fallen after a Fed rate hike and vice versa.  

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Getting a Mortgage Soon? Read This Now!

If you're in the mortgage process currently or if you will be soon, there is a tremendously important development to be aware of.  The net effect is that rates are about to go up and, in some cases, they already have.  

The culprit is the new "adverse market fee" announced for all refinances guaranteed by Fannie Mae or Freddie Mac on or after December 1st.  To hit that date with some lenders, your loan would need to close by mid-to-late October!  Given the high demand for mortgages, new loans will take at least that long in many cases.  

The fee will result in rates moving higher by 0.125-0.25% (or in additional closing costs equal to 0.5% of the loan amount).  

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No, Mortgage Rates Are Definitely Not Back to All-Time Lows!

It's Thursday and thus time, once again, for the weekly mortgage rate survey from Freddie Mac.  News organizations and even some bond market strategists (sadly) rely on Freddie's weekly update for a sense of mortgage rate movement.  That's why an overwhelming majority of the new mortgage rate articles on any given week come out on Thursdays.

Unfortunately, the unified onslaught of news coverage adds unjustified credibility to what is at best stale information.  This creates uncomfortable conversations for loan originators and their clients who ask why their recently quoted rate isn't any lower.  After all, today's rates are at all-time lows, right?!

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