Rate Check Follow Up: Watch For Lock-In
A: Exactly 1 week ago I wrote a post titled, "Bond Yields Fall / Lending Rates Next" in anticipation of relief in the lending markets for all you prospective purchasers out there. Here is the follow up. In the post I predicted relief in lending rates as the lagging effect of the mortgage markets react to the fall in the 10YR bond yield. Since, we have had some fear installed in the tradable markets with the accompanying uncertainty causing a flight to quality in the bond markets. That drove down equity prices and drove up bond prices resulting in lower bond yields; bond prices and yields move in opposite directions. Due to this change in market psychology and resulting lower bond yields, those buyers looking to lock in their rates have something to be excited about. Lets analyze.
First off, here is the drop in the 10YR bond yield over the past 30 days. As you can see, yields are down about 40 basis points (0.40% - WOW) since July 6th!
When I wrote that post a week ago, lending rates were at...
JUMBO Loan Rates Quoted At...
30YR Fixed - 6.875%
7YR ARM (principal + interest) - 6.375%
5YR ARM (principal + interest) - 6.125%
*Disclaimer - Rates are subject to change based on loan amount, credit, risk adjusters, and a minor banking relationship with Wells Fargo. All may affect the final rate quote.
...as quoted by Michael McGivney of Wells Fargo.
Today I went with Steven Maasbach of Manhattan Mortgage Company to provide me with rate quotes. Here they are showing you the drop in the past 7 days or so. Please note their disclaimer.
JUMBO Loan Rates (no points) Quoted At...
30YR Fixed - 6.625% (drop of 0.25%)
7YR ARM (principal + interest) - 6.25% (drop of 0.125%)
5YR ARM (principal + interest) - 6.125% (no change)
*Disclaimer - Interest rates and products are subject to change at any time without
notice. Manhattan Mortgage is not responsible for any rates that may
change prior to lock confirmation.
So, what do you do if you are in the midst of signing that contract or just recently signed the contract and are attempting to time your interest rate lock in? WATCH 10YR YIELDS!
Now that 10YR yields had a huge drop in a relatively short period of time, I would expect the lagging effect into the mortgage markets to continue for a few more days on top of what already happened; hopefully! Here is what to do and how to follow it yourself.
BE PATIENT & DON'T LOCK IN YET - -> The recent move will probably still take a few more days to trickle through to lending rates. As long as 10YR bond yields continue to stay around 4.78% OR continue to trickle lower there should be some more slight relief in lending rates to come early next week. Any move BUT UP means you can be a bit patient for that lock in.
LOCK IN RATE WHEN 10YR YIELD BOUNCES HIGHER ---> Only lock in the rate if you see a surge in 10YR bond yields in the coming trading days; as a bounce in bond yields is very possible and if it does happen it could be sharp! Thats what you are waiting for to pull the trigger on your lock in! If 10YR bond yields surge to 4.95% on Monday, then you lock in your rate immediately! You are on '10YR bond yield SURGE WATCH' as the indicator to pull the trigger on locking in! I can't be more clear on this. If the surge doesn't happen, then be patient. If it does, lock the rate in that day as the next few days should see a rise in lending rates as the lagging reaction.
I don't see any action from the fed even in the face of what happened this week in the credit and equity markets. I think they are still on hold so in the meantime, you must understand how to ride the short term volatility in the bond markets if you are trying to time your rate lock in. Its the best near term indicator we have.
Posted by uwsider
Fri Jul 27th, 2007 02:10 PM
Could you recommend any banks/mortgage companies to get a co-op loan? or at least mention some that should be avoided?
Posted by Noah
Fri Jul 27th, 2007 02:45 PM
hey uwsider - I really dont want to discuss banks to avoid. However, I will say that I quote Michael McGivney and Steve Maasbach because out of all the deals I have done on buy side they have:
1. always provided very competitve quotes; closing costs
2. always provided a very smooth transaction
They are both with Wells Fargo & Manhattan Mortgage Co., two very reputable lenders in the NYC area and ones that should allow any seller to move forward with confidence!
Posted by frank
Fri Jul 27th, 2007 11:01 PM
Little factoid:
In the last 10 of the 11 years, mortgage rates were lower in the 2nd half of the year compared to the 1st half. Make sense if you think about seasonality of the housing market but these days it's driven by much bigger factors, global inflation etc.
Posted by sam
Sun Jul 29th, 2007 10:25 AM
Noah,
What do you think would happen to Manhattan realestate if the stock market tanks and we have no "bonuses" this year?
Posted by Noah
Sun Jul 29th, 2007 06:55 PM
Sam - Well, the effect on Manhattan real estate wont be immediate, it will lag, especially if the stock market experiences a slow and consistent retreat in equity prices for the rest of the year.
If we have a sharp correction, psychologically, it WILL AFFECT a large number of buyers and perhaps sellers who were contemplating selling (who probably will choose to unload and not take on the risk anymore of waiting).
Back to the original circumstance, if we see a slow and consistent correction that leads to job losses and significantly lower bonuses than what many got used to in past years, you will start to see a slowdown in volume FIRST, and then you will see the price correction to meet demand. Manhattan sellers are stingy and rightfully so in a market with so little product, ultra low rental vacancy rates, healthy foreign demand, and healthy buyer demand in general.
Everything lags here. First you'll see the carnage (if it happens) and later you'll see the pullback from the trickle through effect of that move lower.