Interest rates have quietly moved lower over the past several months. There have been some swings, but overall rates are still nearly 0.75 percent lower than they were one year ago. Just last fall the average 30 year fixed rate mortgage hovered closer to 5% when the national average hit 4.94%. This is quite a move that many might be overlooking.
For those who perhaps thought about refinancing last fall but found out that rates weren’t as low as they might have thought and sat on the sidelines. The 15 year fixed rate has also dropped by more than 0.75% from one year ago. Note these rates are national averages surveyed by Freddie Mac. The survey is taken every week and known as the Primary Mortgage Market Survey.
When the survey is performed and results released, consumers should know that once these rates are posted on Freddie Mac’s there is no guarantee the rates will still be available to consumers. Rates can and do change daily, sometimes imperceptibly, but they can change, nonetheless. In times of extreme economic volatility, there can even be an intra-day rate change. But there is a method of how and when rates do change. For example, the conforming 30 year fixed rate is tied to either the Fannie Mae or Freddie Mac mortgage bond. And just like any other bond, when the price of the bond goes up, the yield goes down. In this instance, the yield is the actual rate.
Investors buy these bonds and know the return in advance. Bonds are purchased as a flight to safety. The yield on bonds is relatively low compared to say an individual stock or mutual fund. But mortgage bonds are bought based upon speculation. If investors feel the economy is headed for a slowdown, they can shift their portfolio more toward bonds to avoid losing equity with their investment.
For the past several months there really has been very little strong economic news to report and investors have little to go on. The economy has been on a relatively steady roll with little indication from the Federal Reserve about future rate moves.
It’s important to note here that the Fed doesn’t directly affect the everyday 30 year fixed rate. Instead, the Fed adjusts the rates that banks can charge one another for short term loans. Short term as in overnight when a bank needs to meet reserve requirements. Instead, investors take cues from the Fed. When the Federal Open Market Committee, or the FOMC, meets every six weeks their discussions center around the current economy and what the future might hold. If the economy is heating up there’s the possibility of inflation.
Stronger demand for goods and services means businesses can charge more. And while the economy has been doing just fine it’s not going “gangbusters” which tells the Fed it can probably sit back and leave rates alone. At the same time, at the end of the meetings, the Fed Chair makes an announcement regarding what was discussed and gives a general idea about where the Fed thinks the economy will be a few months down the road.
What’s interesting about mortgage rates being as low as they are its sort of against the grain of traditional economic thinking. When the Dow keeps breaking records, historically that would mean rates would rise as investors pull money out of bonds and into stocks but that really hasn’t been the case. There really is no inflation and the economy keeps chugging along.
While interest rates, in general, haven’t hit new record lows, they’re still very close. Those who were thinking of refinancing might want to revisit that notion. At the same time, lower rates mean more people are able to afford a new home and can bring in potential new buyers that might have decided against buying a home because the homes they could afford weren’t exactly a good fit financially. Lower rates allow buyers to buy and finance a home they really want and not have to settle for a smaller, less expensive home.
Finally, the rates you might see online won’t be readily available to any consumer unless there is an active loan application. Guaranteeing an advertised rate, or locking in, typically requires a borrower to have a completed loan application on file. Once a property is located, that opens up the opportunity for a rate lock.
Current and new home buyers can contact us 7 days a week for rate quote by calling the number listed above, or just submit the Quick Request Form on this page.