Mortgage Rates: The Obtainium Economy

Mortgage Rates: The Obtainium EconomyMortgage rates and obtainium have a lot in common, something great for borrowers who prefer smaller monthly payments. Let me explain.

There was a special trash pick-up on Saturday morning in our part of Pensacola. You could put big stuff in front of your house and a huge city truck would come by and scoop it up at no cost.

The catch is that our contribution – an old barbecue – never made it. We put it out Friday night and within 10 minutes freelance folks in a white truck stopped and admired our potential landfill contribution. Instantly, what was once an old barbecue was now obtainium, something picked up on the street by entrepreneurs who will use it or sell it.

I wish them well and admire their drive. They’re helping the city reduce landfill usage while at the same time we have less backyard clutter. Maybe our street-side collectors will make some money in the process. Everybody wins.

Obtainium & Mortgage Rates

All of which brings us to mortgage rates. At today’s rates real estate loans are little more than financial obtainium, a commodity so cheap that lenders are pretty much giving it away, hoping to make money on fees and charges.

Freddie Mac says prime 30-year mortgages were priced at 3.48 percent last week. That’s a full half percent LESS than a year ago and just 17 basis points above 3.31 percent – the historic low we saw in 2012.

The problem for lenders is that fixed-rate mortgages in the 3 percent range are a potential hazard. No lender wants to be hooked in for as long as 30 years at today’s rates because interest levels might rise and that means lost opportunities for higher returns. Of course, if you want a bright-and-shiny ARM — financing with rates that can go higher — lenders will be elated to speak with you.

Why then do lenders make long-term fixed-rate loans? While a 30-year mortgage potentially means that a lender’s money will be tied up for three decades, in practice that’s not the case. Right now the typical mortgage is outstanding just 6.7 years. The result is that obtainium financing is acceptable to lenders because they know that the odds of a quickie pay-off are on their side.

Higher Mortgage Rates Ahead?

How long can obtainium rates remain in place?

“The all-time home price highs nationwide an in many local markets are being enabled by historically low mortgage rates — which are falling once again this year,” said Daren Blomquist, senior vice president at ATTOM Data Solutions (formerly RealtyTrac). “It is likely that some of the most interest rate sensitive local markets will see home price appreciation knocked down when the low rate rug is finally pulled out from under the housing recovery. We are seeing signs of weakening appreciation in many bellwether markets already in spite of the rock-bottom rates.”

But what if rates don’t go up? What if they fall further?

There’s a very good reason to believe that lower mortgage costs lie ahead. Despite robust home sales and generally rising real estate values the pricing for 1-year Treasury notes was at 1.46 on Friday, down from 1.57 percent the previous Friday.

Shouldn’t interest rates be rising with such a strong housing market, a time when a lot of people want mortgages? That would seem to be logical – unless we still have huge volumes of capital pouring into the mortgage marketplace.

Supply and demand suggest that rates will be headed lower in the coming week. Obtainium mortgage rates are still here – and may well be getting even better.

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