I have no explanation for it but mortgage rates in Orange County jumped today on 30-year fixed conforming and jumbo loans after the Federal Reserve cut a key short-term rate by half a percentage point to 3%. (Conforming loans are up to $417,000 and jumbo loans are greater.)
The average rate on a 30-year conforming rose to 5.628% today, from 5.597% yesterday. The average rate on a 30-year jumbo climbed to 6.705% from 6.659%. All rates are quoted with a one-point fee.
Perhaps bond traders didn’t like something in the Fed’s statement or were hoping for a bigger cut. They sold bonds after the announcement, pushing up yields. The yield on a 10-year Treasury , a loose indicator of mortgage rates, rose to 3.73% as I write this. It closed yesterday at 3.658%.
To read more on the Fed cut CLICK HERE.
The 10 year follows the expected performance of the economy on a longer term.
If the market believes that the economy will improve sooner than later due to these moves, they’ll demand a higher premium on the longer term investment.
Without checking the spread an inflation protected securities, it might also be the case that the market is expecting this to trigger more inflation, and is so requiring a higher yield on the longer term security which is more threatened by the effects of inflation..
If the Fed were to keep short term rates very high, with the general consensus that it would slow growth significantly for several years, the long term rates would naturally go down.
Most people will not be able to refiance because they are UPSIDE on their mortgages. What’s the point? To bailout the banks?
As people refi and lower mortgage payments they are using the home as the old familiar ATM. More money to spend. Good for business.
Consider the possibility that over the last few years much of the money that funded the mortgage market was trade deficit dollars in the hands of foreign banks. US mortgages may have been very attractive to them, especially considering low treasury returns.
Now the Fed rate cut is viewed as leading to a weaker dollar, so a higher interest rate will have to be charged to make up for anticipated exchange rate loss.
ummm… it’s because of the increased INFLATION risk, that these ridiculously low short term rates cause.
I’m also guessing inflation fear is partly responsible. Risk premium for non-GSE loans is enhanced right now, although that does not seem entirely rational. After a market in which risk assessment was completely ignored for several years, risk assessment has gone overly tight. I guess that’s just “normal”, i.e., routine. Too bad for folks with jumbos who are excellent credit risks, we just get dorked again.
Matt,
Today was nothing. Last week, after the Fed dropped .75%, the 30 year fixed rate mortgages were at 5.125% or even lower at par. Wednesday, the rate increased to 5.5%, all in one day! That was the day the stock market made a 600 point reversal. In fact, in the recent few weeks, the mortgage interest rates have aligned themselves with the stock market, as the Dow goes up, rates go up. Investors are selling bonds to get into stocks, and vice versa.
And almost everytime the Fed has decreased the short term rates over the years, long term rates go up. The media just has no clue how this works. How many times do I hear the news anchor come on the TV and say that your mortgage rates will go down? Drives me nuts. How many people call me and ask to have their rate reduced, just because the Fed lowered the Funds rate?
Only the prime rate moves in accordance with the Fed, and about the only mortgage product tied to the prime rate is the Home Equity Line of Credit. Lower short term rates increase the probability of inflation, hence the longer maturities suffer.