Mortgage rates are down. That’s not a fantasy. They’re certainly not as low as last summer nor as far down as 2012 when we saw the lowest rates in 65 years, but they’ve dropped from recent highs and they may go lower.
Ten-year Treasury notes are useful to follow because they generally move up and down with mortgage rates. This happens because to investors mortgages and 10-year Treasuries represent roughly equal risk so they will jump to the option with a better return.
If we look back at 10-year Treasuries we can see some interesting numbers:
January 4, 2016 — Start of the year. Treasuries at 2.24 percent.
July 8th — Treasuries at 1.37 percent, meaning rates fell .87 percent (87 basis points) during the first seven months last year even though the Federal Reserve had raised bank rates in December 2015. While mortgage rates and Treasury rates move with the market, bank rates are effectively set by the Federal Reserve.
November 7th — The day before the election 10-year Treasuries are at 1.83 percent, up substantially from July but far below January. The November rate reflected constant hints from the Fed that it wanted to raise bank rates — effectively a tax on the entire economy — and the potential uncertainty which concerned many investors in the event of a Trump victory.
Mortgage Rates & The Trump Bump
December 16th — The height of the so-called Trump Bump and 10-year Treasuries reach 2.60 percent
January 3, 2017 — Ten-year Treasuries open the year at 2.45 percent, up just 21 basis points when compared with a year earlier (2.24 percent). Except for marginal mortgage borrowers, the “higher” rate means almost nothing. According to Freddie Mac, rates for 30-year prime mortgages went from 3.97 at the start of 2016 to 4.20 during the first week of 2017. For someone who borrows $100,000, the monthly cost for principal and interest is $489.02 at 4.20 percent versus $475.69 at 3.97 percent. That’s a monthly increase of $13.33.
Notice something else? Rates have fallen since mid-December. The impact of the Fed action has begun to fade, just like it did in 2016.
What will happen during the rest of 2017? We don’t know. Will there be additional Fed hikes? We don’t know. If there are more Fed hikes will independent mortgage rates also rise? We don’t know.
What we do know is this: As we saw last year — and despite various predictions by leading economists — higher mortgage rates are hardly a mortal lock.
(Photo courtesy of Nathan Walker)