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4.5, we hardly knew you. And I never even met you!
May/28/09 14:13 Filed in: Mortgage
Rates
Thom looks back wistfully on the good old
days of mortgage rates in the 4% range . . . excuse
me, I'm all Verklempt!
Ahh, the heady days of March, April, and early May
have come and gone here in Bend, Oregon. Flowers
bloomed, the sky was purty with puffy clouds and the
occasional snow flurry, and mortgage rates bottomed
out around 4.5% for those with 700 or over credit
scores. You may recall I mentioned in last month's
blog that I had decided it was time for my wife and I
to get into the monopoly game and buy. It was my
belief- and still is- that it was nearly the exact
moment of the market bottom in Bend- bottom being in
this case an amalgam of low rates, historically low
per square foot prices that have fallen up to 65%
from the peak in '06, and a plethora of bank owned
homes, which, as you probably know, I believe are an
unprecedented bargain that will have those who
purchase them feeling much better than the rest of
the home owning populace in short order.
We found one. Oh boy, we found one. (And it's still available, for anyone else who may be interested- Valhalla Heights, NW Bend, 5 (6 in a pinch) bedroom, 4 bath, .35 acres, 2553 sq. feet, huge yard, local bank owned, $279k- yes, it needs some work, unless you are a huge fan of the 1970's. It sold for about $450k at market peak.) But for a $5500 balance on my Discover card, we were good to go. But, I said to my smiling friend Carl, there is no way I am taking money out of my stock account to pay that card at this juncture when my money is doubling monthly, so our plan was to wait until September, and then pay off the card after we have slaughtered the fatted calf of Wall Street for a few more months, which should be some of the best months of the year, in my estimation. But, as is my penchant, I digress.
That day, approximately 3 weeks ago, I was quoted a rate of 4.875 by my good friend Carl Salvo. When we found out we could not yet get the loan without messing with my sinister plan for financial market domination, I ranted a bit about rates shooting up the rest of the year, and the possibility of the best foreclosures being gone by September, after the Summer feeding frenzy. Well, it turns out I was right about the rates. We are well above 5 today, in fact at bankrate.com, they list the prevailing 30 yr fixed rate for the Bend area at 5.3% with an over 700 score. Compare that with three weeks ago, and you'll see what I was concerned about.
You may have noticed the happy jump in the stock market today, which has been building a base for further gains with a very flat May- in my mostly humble and oft-neglected opinion. Today's happy jump was caused by the 7 year treasury auction which took place this morning- stocks were down when they thought no one would buy the 7 year, but shot up the very second the news came out about the auction. Mortgage rates are tied to the 10 year, and to a lesser extent the 7, but as goes the 7, so goes the 10. Carl will tell you that's not exactly the case, as mortgage rates are technically tied to MBS (Mortgage backed securities), and he's right, but for the layman, such as myself and possibly you, the best and easiest way to gauge mortgage rates is to look at the mid term treasuries - the 7 and especially the 10- and see where they are going.
And today, after much worrying and whining by the business media that the US might be in a heap of trouble if no one wanted to buy them, well, it turned out a whole lot of folks wanted in, and it was in fact an over-subscribed auction, meaning people who wanted in could not get in. This is good news for the economy, as the government is able to raise cash to pay our burgeoning debt, but the more treasuries they pump into the system, the higher the yield goes (the interest rate paid on them). Treasuries are a funny animal, because although more supply means lower prices paid for the treasuries, prices and rates move in opposition, so the lower the price goes, the higher the rate, known as the yield, goes.
Furthermore, the reason mortgage rates track them is that an investor looking at buying a packaged MBS knows he always has the option of buying the 10 year T bond instead, which is rock solid secure (we hope!), whereas, and I am stating the obvious after what we have been through, investing in an MBS is most certainly not. So, if one of these predominantly Asian or Middle Eastern investors is looking at buying MBS, he/she is going to look at the 10 year rate first, and then want a substantial amount more in yield from his MBS purchase to match the substantially higher risk profile. It's these investors who physically and practically set the rates we home buyers pay.
And, the unpleasant fact is that the US Gov't is going to keep dumping treasuries on the market for the foreseeable future, meaning prices will continue to go down and yields will continue to rise, meaning mortgage rates will follow. Carl tells me the 4's are gone, probably for good. However, 5's are still lower than historic rates, and even lower than last year's prevailing rate of 6.2%. Prior to this year, when was the last time you saw a rate in the 5's? It's been a while. There was a very brief period in the early 2000's after the tech crash, but that's about it. Even rates in the 6's sounded good in the 90's (my 1997 mortgage was at 7.25%). And in the 80's? Fahgeddaboutit. We're talking teens.
So, my message today to my reader is that, yes, the glory days of mortgage market bottom are past. But, they are still awfully good, getting a little worse in increments as you look further out on the calendar of 2009 and 2010. Our government has deep debt, so they may go higher now for years to come as they continue to flood the market with treasuries. If you are thinking of buying and are able, my advice would be to move sooner rather than later. The difference in a monthly payment on a $300,000 house is easy to see:
$300,000 loan (this is a very simple presentation with no down, and not including closing costs, mortgage insurance, or tax and interest prorates)
~ 5.5%- $1703 a month
~ 6.5%- $1896 a month
~ 7.5%- $2098. a month
So, on a $300,000 loan, you're talking about approximately $200 per rate point per month. If the monthly payment is your primary concern, you'll want to think about getting moving if you are able. If you're like me and have to wait, we can open that higher rate gift together at my birthday party at the end of August. I'm hoping someone gets me a nice, shiny, new one at about 5.5%. I can live with that. 6.5% means I will be looking at a less appealing house, in a less appealing neighborhood (in other words, not Bend's West side). I don't think we're headed above 7 until at least next year, and the Obama administration would quite possibly move to cap rates if it started looking like they were headed there unless housing really takes off this Summer, so I'm not gonna worry too much about getting that lump of coal for my 39th- but with home sales up in the big bellwether markets of California, Florida, Arizona, and Las Vegas, they may not be in a hurry to step in too soon. Still, I'm going to have to take down that picture in my locker of the shiny, new, 4.5% bicycle I thought I was gonna get . . .
Other interesting tidbit for inquiring minds- 90% of surveyed economists now say the recession is over in 2009, not 2010 as had been predicted earlier. Green shoots indeed. I even heard an economist yesterday pick August 31st (Hey, that's a week after my birthday!) as the "official" end. But, remember, the stock market leads a recovery by 6 months, whereas jobs lag the economy by 6 months, so don't get excited about that six figure job opening up at the bank. Yet.
AND- the best news of all for a Realtor in Bend, often called California North, the California Realtor's association today announced that home inventories there have fallen to HALF of what they were in 2008. That's outstanding, and it means help is on the way if you are trying to sell a California home. Or if you are selling homes to Californians! Which, of course, I used to be as well.
Here's a link to a story on this week's mortgage rates: Mortgage rates spike
OH YES- AND DON'T BE TAKEN IN BY ADS FOR 4.5% or 4.75% rates from not so honest mortgage outfits- those are BUY DOWN rates, meaning you can get them, but you have to "buy them down" by paying cash up front in addition to your closing costs- usually several thousand dollars extra. If you plan to live in the home for perpetuity a buy down can surely be worth it (I considered one on the Valhalla house, where we would live until my youngest daughter graduates high school in 11 years), but think very hard about taking your business to a place that advertises those rates that any mortgage broker can give you, while burying the fine print about the true cost.
We found one. Oh boy, we found one. (And it's still available, for anyone else who may be interested- Valhalla Heights, NW Bend, 5 (6 in a pinch) bedroom, 4 bath, .35 acres, 2553 sq. feet, huge yard, local bank owned, $279k- yes, it needs some work, unless you are a huge fan of the 1970's. It sold for about $450k at market peak.) But for a $5500 balance on my Discover card, we were good to go. But, I said to my smiling friend Carl, there is no way I am taking money out of my stock account to pay that card at this juncture when my money is doubling monthly, so our plan was to wait until September, and then pay off the card after we have slaughtered the fatted calf of Wall Street for a few more months, which should be some of the best months of the year, in my estimation. But, as is my penchant, I digress.
That day, approximately 3 weeks ago, I was quoted a rate of 4.875 by my good friend Carl Salvo. When we found out we could not yet get the loan without messing with my sinister plan for financial market domination, I ranted a bit about rates shooting up the rest of the year, and the possibility of the best foreclosures being gone by September, after the Summer feeding frenzy. Well, it turns out I was right about the rates. We are well above 5 today, in fact at bankrate.com, they list the prevailing 30 yr fixed rate for the Bend area at 5.3% with an over 700 score. Compare that with three weeks ago, and you'll see what I was concerned about.
You may have noticed the happy jump in the stock market today, which has been building a base for further gains with a very flat May- in my mostly humble and oft-neglected opinion. Today's happy jump was caused by the 7 year treasury auction which took place this morning- stocks were down when they thought no one would buy the 7 year, but shot up the very second the news came out about the auction. Mortgage rates are tied to the 10 year, and to a lesser extent the 7, but as goes the 7, so goes the 10. Carl will tell you that's not exactly the case, as mortgage rates are technically tied to MBS (Mortgage backed securities), and he's right, but for the layman, such as myself and possibly you, the best and easiest way to gauge mortgage rates is to look at the mid term treasuries - the 7 and especially the 10- and see where they are going.
And today, after much worrying and whining by the business media that the US might be in a heap of trouble if no one wanted to buy them, well, it turned out a whole lot of folks wanted in, and it was in fact an over-subscribed auction, meaning people who wanted in could not get in. This is good news for the economy, as the government is able to raise cash to pay our burgeoning debt, but the more treasuries they pump into the system, the higher the yield goes (the interest rate paid on them). Treasuries are a funny animal, because although more supply means lower prices paid for the treasuries, prices and rates move in opposition, so the lower the price goes, the higher the rate, known as the yield, goes.
Furthermore, the reason mortgage rates track them is that an investor looking at buying a packaged MBS knows he always has the option of buying the 10 year T bond instead, which is rock solid secure (we hope!), whereas, and I am stating the obvious after what we have been through, investing in an MBS is most certainly not. So, if one of these predominantly Asian or Middle Eastern investors is looking at buying MBS, he/she is going to look at the 10 year rate first, and then want a substantial amount more in yield from his MBS purchase to match the substantially higher risk profile. It's these investors who physically and practically set the rates we home buyers pay.
And, the unpleasant fact is that the US Gov't is going to keep dumping treasuries on the market for the foreseeable future, meaning prices will continue to go down and yields will continue to rise, meaning mortgage rates will follow. Carl tells me the 4's are gone, probably for good. However, 5's are still lower than historic rates, and even lower than last year's prevailing rate of 6.2%. Prior to this year, when was the last time you saw a rate in the 5's? It's been a while. There was a very brief period in the early 2000's after the tech crash, but that's about it. Even rates in the 6's sounded good in the 90's (my 1997 mortgage was at 7.25%). And in the 80's? Fahgeddaboutit. We're talking teens.
So, my message today to my reader is that, yes, the glory days of mortgage market bottom are past. But, they are still awfully good, getting a little worse in increments as you look further out on the calendar of 2009 and 2010. Our government has deep debt, so they may go higher now for years to come as they continue to flood the market with treasuries. If you are thinking of buying and are able, my advice would be to move sooner rather than later. The difference in a monthly payment on a $300,000 house is easy to see:
$300,000 loan (this is a very simple presentation with no down, and not including closing costs, mortgage insurance, or tax and interest prorates)
~ 5.5%- $1703 a month
~ 6.5%- $1896 a month
~ 7.5%- $2098. a month
So, on a $300,000 loan, you're talking about approximately $200 per rate point per month. If the monthly payment is your primary concern, you'll want to think about getting moving if you are able. If you're like me and have to wait, we can open that higher rate gift together at my birthday party at the end of August. I'm hoping someone gets me a nice, shiny, new one at about 5.5%. I can live with that. 6.5% means I will be looking at a less appealing house, in a less appealing neighborhood (in other words, not Bend's West side). I don't think we're headed above 7 until at least next year, and the Obama administration would quite possibly move to cap rates if it started looking like they were headed there unless housing really takes off this Summer, so I'm not gonna worry too much about getting that lump of coal for my 39th- but with home sales up in the big bellwether markets of California, Florida, Arizona, and Las Vegas, they may not be in a hurry to step in too soon. Still, I'm going to have to take down that picture in my locker of the shiny, new, 4.5% bicycle I thought I was gonna get . . .
Other interesting tidbit for inquiring minds- 90% of surveyed economists now say the recession is over in 2009, not 2010 as had been predicted earlier. Green shoots indeed. I even heard an economist yesterday pick August 31st (Hey, that's a week after my birthday!) as the "official" end. But, remember, the stock market leads a recovery by 6 months, whereas jobs lag the economy by 6 months, so don't get excited about that six figure job opening up at the bank. Yet.
AND- the best news of all for a Realtor in Bend, often called California North, the California Realtor's association today announced that home inventories there have fallen to HALF of what they were in 2008. That's outstanding, and it means help is on the way if you are trying to sell a California home. Or if you are selling homes to Californians! Which, of course, I used to be as well.
Here's a link to a story on this week's mortgage rates: Mortgage rates spike
OH YES- AND DON'T BE TAKEN IN BY ADS FOR 4.5% or 4.75% rates from not so honest mortgage outfits- those are BUY DOWN rates, meaning you can get them, but you have to "buy them down" by paying cash up front in addition to your closing costs- usually several thousand dollars extra. If you plan to live in the home for perpetuity a buy down can surely be worth it (I considered one on the Valhalla house, where we would live until my youngest daughter graduates high school in 11 years), but think very hard about taking your business to a place that advertises those rates that any mortgage broker can give you, while burying the fine print about the true cost.