By Jeff Lazerson | email@example.com | MortgageGrader.com | February 25, 2021
Best to describe this turn of events as mortgage rate whiplash.
On Jan. 7, Freddie Mac crowed about the 30-year fixed-rate at its all-time low of 2.65% with an average of 0.7-point cost, its 17th record low since March.
This week, Freddie reported the 30-year fixed stands at 2.97%, with an average of 0.6-point cost — a stunning 32 basis point runup just seven weeks later.
Rates have not been this high since Aug. 20, when the 30-year was at 2.99%.
I reported the local availability for a 30-year fixed mortgage at 2.375% with 1-point cost the week of Jan. 7. California rates tend to be lower than Freddie’s averages because larger loan sizes and fierce competition drives pricing lower than in other parts of the country.
This week, we find local 30-year fixed rates at 2.75% with 1-point cost.
So what gives? And where do we go from here on this mortgage rate merry-go-round?
Inflation is top of mind for many investors as COVID-19 cases decline, thanks to the shot in the arm we’re getting from some great vaccines.
Congress passed the $2 trillion CARES Act in March. Congress passed another $900 billion spending plan in December. Currently an additional $1.9 trillion is on the table. And there is a wide expectation that employment numbers will continue to improve.
The money supply increased 25% in the fourth quarter of 2020 from the year before, said Raymond Sfeir, director for economic research at Anderson Center for Economic Research at Chapman University.
“The trend is upward for rates. There is no doubt about it,” said Sfeir. “I fear inflation getting worse.”
Sfeir foresees mortgage rates at 3.8% to 4% by the end of this year.
Christopher Thornberg, founding partner of Beacon Economics, is right there with Sfeir. Thornberg expects mortgage rates to reach 4% by the end of the year.
“The cost of debt relative to income has never been lower,” said Thornberg. “A phenomenal spike in government debt will drive rates higher.”
Not so fast. There is a very powerful 800-pound gorilla in the room by the name of Jerome Powell.
Federal Reserve Chairman Powell offered his views about inflation and interest rates when he testified on Capitol Hill this week.
Powell believes rampant inflation is not a problem amid the coronavirus recovery. The Fed is going to maintain its ultra-low interest rate policies.
For example, the Fed is purchasing $120 billion in bonds a month to hold down longer-term rates.
Whalen Global Advisors Chairman Christopher Whalen, who advises a bunch of big mortgage lenders, comes much closer to Powell’s thinking.
Whalen expects mortgage rates to hit 3.4-3.5% this summer. But he sees the potential mortgage rate U-turn after that.
“If we see a second-half rally in the bond market, rates will go below 3% again,” Whalen said.
While the future direction of mortgage rates is clear as mud, higher rates have already impacted home affordability and refinance incentives.
Since Jan. 1, there has been a 3% decline in homebuying power that could have a modest cooling effect on the market, according to mortgage data firm Black Knight.
Did you miss the last train out? Is it too late to buy or refinance?
Hardly. There’s still a chance for a mulligan for those who have not found their new fortress or pulled the refinance trigger.
Across America, 1.9 million borrowers lost their incentive to refinance when rates rose last week, according to Black Knight.
Despite the decline, however, 16.3 million refinance candidates remain — more than the weekly average seen throughout 2020, Black Knight figures show. These candidates have the potential to save $4.9 billion on their monthly mortgage payments.
Mortgage lender profit margins were big last year — about 100 basis points higher than they have been historically, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance.
“Margins grow when demand is strong and there is plenty of business to go around, like in 2020,” Cecala said. “When demand starts to fall off and competition increases, that is when margins tend to go down.”
Indeed, mortgage applications fell more than 11% last week, according to the Mortgage Bankers Association.
So, many a mortgage lender will use a sharper pencil to keep pricing closer to your happy zone.
Don’t dawdle. Eventually, Fed Chair Powell will announce an inflation-fighting policy and end the Fed’s bond-buying binge. The last train out will have been long gone the moment he utters his thoughts.
Freddie Mac rate news: The 30-year fixed-rate averaged 2.97%, jumping a whopping 16 basis points from last week. The 15-year fixed-rate averaged 2.34%, up 13 basis points from last week.
The Mortgage Bankers Association reported an 11.4% mortgage application decrease from the previous week.
Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $548,250 loan, last year’s payment was $144 more than this week’s payment of $2,303.
What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1-point cost: A 30-year FHA at 2.25%, a 15-year conventional at 2.125%, a 30-year conventional at 2.75%, a 15-year conventional high-balance ($548,251 to $822,375) at 2.25%, a 30-year conventional high-balance at 2.875% and a jumbo 30-year fixed at 3.25%.
Eye catcher loan of the week: A 30-year fixed rate at 3.125% without fees or points.
Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or firstname.lastname@example.org. His website is www.mortgagegrader.com.
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