Will Mortgage Rates Drop Any Lower?

August 11, 2011 1 Comment »


Mortgage Q&A: “Will mortgage rates drop any lower?”

With mortgage rates so low, many “fence-sitters” and prospective refinancers seem to be wondering if the near-record low mortgage rates could possibly go any lower.

Per Freddie Mac, mortgage rates on the 30-year fixed slipped to 4.32 percent this week.

That’s near the record-low 4.17 percent seen the week of November 11, 2010, but still a touch higher.

Meanwhile, the 15-year fixed averaged 3.50 percent, its lowest level ever. And adjustable-rate mortgages are also at record lows.

(30 year fixed vs. 15 year fixed)

Bankrate posted similarly low mortgage rates this morning, just above previous records.

The company also has a weekly mortgage expert prediction, with 36 percent seeing rates remaining unchanged next week, 36 percent predicting further declines, and 28 percent looking for an uptick.

Bad Economic News Means Low Mortgage Rates

Well, as we all know (or should know), bad economic news means lower mortgage rates. And vice versa.

So the recent S&P credit rating downgrade, followed by a stock market crash and new stirrings in Europe have pushed mortgage rates lower and lower.

This forced the Fed to step in and pledge to keep the Fed funds rate low through at least mid-2013, citing weaker than expected economic growth.

But some committee members expressed worry about inflation in the future, which would call for higher interest rates to stem those concerns.

All that caused stocks to yo-yo all week. Up one day, down the next. And repeat. Today, things took another turn, with the Dow up more than 500 points in late trading.

(Stock market vs. mortgage rates)

10-Year Yield Climbing

That demand for stocks has pushed down the price of the 10-year bond, which simultaneously caused the yield to rise 20 basis points.

Mortgage rates track the 10-year yield, so when it climbs, rates climb, and when it falls, rates fall.

So if this stock market rally holds, mortgage rates will likely rise in the next week or so, although probably not dramatically.

That’s the big question mark though – will the rally hold or will stocks sink even lower next week on new great fears of a world economic collapse?

Can It Get Any Worse?

Although we’re getting a taste of what we got initially after the mortgage crisis, there isn’t too much new drama.

And companies are in much better shape now than they were when stuff first hit the fan. Sure, we’re not “all good,” but we’re better off than we were, even if that’s still not very good.

Either way, mortgage rates are still at unprecedented levels historically. They’ve rarely been lower, and the only time they were, there seemed to be a lot more uncertainty than there is now.

Confidence is low, but not at the level it once was. This isn’t going to be a quick turnaround, but things will eventually turn around. And you can expect mortgage rates to rise as things improve.

Lastly, mortgage rates tend to matter more than home prices in terms of affordability. See my mortgage rates vs. home prices piece for more on that.

Rates probably don’t have much more room to fall…a par rate in the 3% range is probably unlikely, and even if it happens, it likely won’t last long.

Home prices are another story – they’ve probably got some more downward pressure, but a lower rate long-term could save you a lot more money than a slightly lower purchase price.

In other words, don’t hold your breath.  This could be as good as it gets.  And hey, it’s pretty darn good.

One Comment

  1. J C February 22, 2012 at 10:33 am -

    what about rates for income property?

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