Mortgage Rates Surge
A: When did I warn you about this? 7 days ago on January 25th, I wrote a post titled, "Why Rates Are Going Higher". Todays report on CNN Money released at 12:12PM today reports a 0.09% rise in mortgage rates to the highest level since October 2006.
According to the CNN Money article:
Moderate inflation along with a strong economic growth pushed up mortgage rates, according to a survey. The 30-year fixed rate mortgage rate averaged 6.34 percent for the week ended Feb. 1, up from 6.25 percent the previous week, according to Freddie Mac's (up $0.23 to $65.16, Charts) Primary Mortgage Market Survey released Thursday. Last year, the 30-year fixed mortgage rate stood at 6.23 percent.When I write these posts I am writing to you based on everything that I learned from following all these markets for the past 15 years or so. If you are involved or thinking about being involved in NYC real estate, you should be reading these posts in the hopes that you can educate yourself & understand how these fundamentals wind up affecting investing in Manhattan real estate. In this case, it was the selloff in the 10YR Treasury note that resulted in a run up in yields. That yield is a very reliable indicator of the future short term direction in mortgage rates.
If you recall, in my post 6 days ago I stated:
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.Continue to keep an eye on the 10YR Treasury note, or just stay tuned to UrbanDigs.com and I'll report on it for you, for any indication on how long this mortgage rate increase will hang around. For now, I'll reiterate what I said 7 days ago for currently active buyers & sellers of NYC real estate:
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.
Posted by Jason
Thu Feb 1st, 2007 05:21 PM
Hi Larry,
Great blog you have here. I am learning tons by just reading your past posts. Keep up the great work!
So with this analysis on rates rising in the near term, what exactly does it mean when one says the "housing market is stabilizing", in terms of fluctuation in actual cost?
Posted by Noah
Thu Feb 1st, 2007 09:03 PM
Jason - Its Noah, but you can call me Larry.
The 'housing market is stabilizing' comments are largely due to past housing data released that showed inventory levels imprving slightly. However, the report is seasonally adjusted and the markets shrugged it off a bit. Also, if sales volume dropped how could inventory levels improve?
Fact is, many homeowners remove listings in NOV & DEC for holidays when showings and activity are generally slow. This report could be a result of that, which would explain it. never theless, any news OTHER THAN bad news is good news for housing. So, thats why you are hearing the stabilization talks. Expect NYC prices to remain high and strong for the next 2-3 months at least. Your best chance at any deals will be during the summer months at the expense of less inventory to choose from.
Posted by Larry Nusbaum
Sat Feb 3rd, 2007 04:01 PM
Dear Larry: Great post! I linked it today to my blog today.
your pal, Noah
Posted by Dave
Mon Feb 5th, 2007 04:11 AM
Hi Noah, can i call you Susan if he can call you Larry? Great post as ever BTW.
I was wondering, for buyers not currently in the market, more watching on the sidelines, what would you advise to do - strike while the iron is hot and secure a low rate, or see if increasing rates (and therefore a decrease in cheaper money supply) puts downward pressure on prices? It's a pretty debateable point, but i'm curious to get your insights. There must be some metrics to cover rate rises against price falls to show total cost of owenship over 15 to 30 year mortgage periods but i'm yet to come across a tool that allows solid evaluation of this set of variables.
Apologies if this has already been covered, a few weeks in the Caribbean last month has left me out the loop for a while! Happy New Year too by the way!
Posted by Noah
Mon Feb 5th, 2007 12:52 PM
lol - sure Dave. Im not sure of any tool either, it would be nice though.
Its tricky, I would take a combination approach. Wait a bit for the seasonal frenzy to die down a bit, and see if you can negotiate a bit more in the slower months where rates seem to be where they are now or slightly higher. I would wait to secure a rate until AFTER you found your home, got the price you wanted, and have a signed contract of sale. Then lock in the rate for 60 days or so.