Why Rates Are Going Higher
A: One of the more reliable indicators as to where 30YR fixed mortgage rates are headed in the very short term, is the bond market and more specifically the 10YR Treasury Note. Based on the most recent trend and current economic evironment, it's making me believe that mortgage rates are heading higher. Here's why and how to be prepared!
Most buyers look to the 30YR fixed mortgage rate for identifying trends, especially if you are gearing up to buy a new home. But most people don't understand what drives these rates higher and lower; which brings us to the purpose of this blog!
As HSH Associates points out:
As a 30-year fixed rate mortgage rarely lasts longer than about 10 years before being paid off or refinanced, the closest instrument which has similar (though lesser) risks is the ten-year Treasury Constant Maturity. Because of this, the ten-year Treasury makes an excellent tool to track mortgage rates.It's true. While I won't go into detail here on what makes the 10YR Treasury note move higher and lower (a topic for another day), lets see what has been happening:
10YR Treasury Chart (Last 2 1/2 Months)
Take a look at what the yield on the 10YR note did in the past 75 days! But don't take my word for it. Dan Green over at The Mortgage Reports is thinking the same thing, and he's in the business. Dan states:
I am predicting that rates will increase over the next 30 days, but that doesn't mean you should necessarily follow my advice when choosing whether to lock a rate, or float it. My advice may not be appropriate for your individual situation.Make sure you note the end of his statement as the ultimate decision to lock in now or wait is entirely up to your unique situation. The post titled, "Bankrate.com Mortgage Trend Index", goes on to discuss a recent bankrate.com Mortgage Rate Trend Survey which finds:
Now I know some of you hate this stuff and want me to keep posting new apartments and price cuts, but if thats the case than you are missing the whole purpose of this blog. Understanding how these fundamentals work and how they relate to one another will help you make the most educated investment decision possible.
UrbanDigs Says: Lending rates are directly related to purchasing power and affordability! With the 10YR moving significantly higher over the past few months, it tells me that the bond market is a bit more worried about inflation and future monetary policy than the stock markets. Whatever the reason, it should cause lending rates and your credit card rates to RISE over the next month or so. Sorry to be the bearer of this news. If lending rates do trickle higher as I expect them to, purchasing power will be restricted as affordability goes down due to the fact that money is more expensive to borrow.
Buyers Should - Keep a close eye on interest rates; money may be more expensive in the near future restricting your budget. If you recently signed a contract and haven't locked in your rate yet, consider doing so as long as the time on the rate lock coincides with when you expect the deal to close. If your not sure, as your mortgage broker if they would give you a 5-10 day extension on the house should the deal close after the lock period expires.
Sellers Should - Understand that if borrowing rates do rise, that this means buyers will be able to afford less. Purchasing power will decrease. If you have a time pressure to sell, consider a price reduction sooner rather than later to stimulate activity in buyer demand. Ideally, you want to get a deal now rather than to wait a month or so when lending rates could very well be higher. We still have the fed meeting coming up so one thing I assure you, this rate environment will be volatile.