Time to Wake Up To The New Mortgage Rate Reality

There’s no precedent for the winning streak enjoyed by mortgage rates in the 2nd half of 2020. We’ve never seen so many new record lows in the same year, and we never spent as much time at those lows (not even close). All of the above makes it easy to get lulled into a false sense of low-rate security, but it’s time to wake up.

Actually, the alarm has been going off for a while now.  Previous posts pointed out the disconnect between the bond market and mortgage rates on multiple occasions in 2020.  Near the end of the year, we warned against complacency in no unspecific terms.

Following the Georgia senate election, we’ve been tracking a surge in bond market volatility based on the expectation that it would increasingly spill over to the mortgage rate world. 

(Read More: 1/8/21: Have We Seen The End of Record Low Rates?)  

As of this week, that spillover arrived in grand fashion with many lenders quoting rates that are as much as three eighths of a point higher than they were last week.  That means if you were looking at something in the 2.75% neighborhood on Friday, it could be 3.125% today.  What gives?

Again, the upward pressure is nothing new.  Treasury yields have been telling the story since August and mortgage rates have finally used up enough of their cushion that they’ve been forced to follow the broader trends. 

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Why have things been so abrupt?  Using up “the cushion” is one thing, but that alone doesn’t force rates to go higher.  For that, we need “broader bond market volatility.”  In other words, Treasury yields need to be spiking. 

As it turns out, that’s been one of their favorite things to do in 2021.  If it seems abrupt, that has a lot to do with bonds coiling in a conservative pattern heading into the Georgia senate election, and unleashing chaos thereafter.

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The election is old news now though.  It simply got the ball of volatility rolling.  Most recently, plummeting covid case counts, improved vaccine distribution, stronger economic reports, and progress on fiscal stimulus reinvigorated the volatility.  This week, 10yr yields broke up and out of their prevailing “trend channel” (the parallel lines seen below). 

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There’s no magic rule that says Treasuries have to stay inside those red lines, but this sort of breakout can be a cue for traders to intensify selling pressure.  In other words, that upper line was a trigger for yields to move even higher.

“But wait… I thought the Fed said it was keeping rates low for YEARS.  What happened to that?”

The Fed sets the Fed Funds Rates… NOT mortgage rates.  The Fed Funds Rate is a super short-term rate (“overnight,” in fact).  10yr Treasuries, on the other hand, last 10 years.  The average 30yr fixed mortgage lasts between 5 and 10 years depending on the market conditions.  Investors place different premiums on rates with different terms.  Simply put, the Fed Funds Rate is indeed still at rock bottom, but longer-term rates are not.

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This isn’t anything new or different, for what it’s worth.  The Fed Funds Rate has always ebbed and flowed in relation to longer term rates.

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“But wait… I heard that mortgage rates are still really low and that they only went up a tiny amount this week!”

Well, that depends on your perspective.  Is 3.125% still really low for the average 30yr fixed mortgage rate?  Yes!  That was the all-time low before covid.  But is it much higher relative to the past few weeks and months?  Here too, it depends on your perspective, so let’s leave it at this: rates rose more this week than on any other week in the past 11 months.

If you’ve heard that rates only rose slightly, it may have to do with headlines quoting Freddie Mac’s weekly survey.  While that survey is accurate over time, it doesn’t capture short-term volatility.  It also tends to stop measuring most of any given week’s volatility on Monday, and Monday was a holiday!  As such, it’s lagging the reality on the street.  

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On the economic data front, Retail Sales (this week’s biggest report) rose at the 4th fastest pace since records began in the early 90s.  In general, stronger economic data puts upward pressure on rates.

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In terms of housing-specific data, this week brought an update on residential construction numbers.  They’re still stellar.  

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Whereas Housing Starts are subject to weather-related delays and other potential roadblocks, building permits are a bit more free-flowing, and they just set another long-term high.

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Source: mortgagenewsdaily.com

Mortgage Rates Roughly Unchanged From Last Week – Mortgage News Daily

Mortgage rates have been extremely stable given their proximity to all-time lows.  Past precedent suggests one of two things when rates set records: a slow grind lower with additional periodic records or a rather abrupt bounce back in the other direction.

The 2nd half of 2020 was definitely characterized by the aforementioned slow grind with at least 20 separate days resulting in record low rates by December 21st.  Since then, rates have gone no lower, but apart from a brief stint in early January, they really haven’t gone appreciably higher either.  This is made all the more impressive by the fact that the broader bond market is indeed telling mortgage rates to rise.  Specifically, 10yr Treasury yields–a perennial travel companion for 30yr fixed mortgage rates–have been rising consistently since August 2020.  

Mortgage rates were largely immune to that Treasury trend due to volatility at the beginning of the pandemic.  Mortgage rates simply weren’t able to drop as quickly as Treasury yields and have been closing the gap ever since.  The cushion is increasingly thin these days, but not so thin as to prevent the mortgage market from faring better in the face of bond market weakness (bond weakness = higher rates, all other things being equal). 

The other key factor in play is that the price of mortgage-backed bonds (the stuff that actually dictates mortgage rates) have simply outperformed Treasuries as the latter suffer more directly from increased Treasury issuance (used to pay for stimulus and other government spending).  

When will this change?  To a large degree, the change has already begun.  Mortgages may not be as volatile as Treasuries but they are correlating more reliably in terms of the direction of movement on any given day.  With that in mind, tomorrow’s 10yr Treasury auction may be the next source of guidance for both sides of the market.

Source: mortgagenewsdaily.com

Mortgage Rates Roughly Unchanged From Last Week

Mortgage rates have been extremely stable given their proximity to all-time lows.  Past precedent suggests one of two things when rates set records: a slow grind lower with additional periodic records or a rather abrupt bounce back in the other direction.

The 2nd half of 2020 was definitely characterized by the aforementioned slow grind with at least 20 separate days resulting in record low rates by December 21st.  Since then, rates have gone no lower, but apart from a brief stint in early January, they really haven’t gone appreciably higher either.  This is made all the more impressive by the fact that the broader bond market is indeed telling mortgage rates to rise.  Specifically, 10yr Treasury yields–a perennial travel companion for 30yr fixed mortgage rates–have been rising consistently since August 2020.  

Mortgage rates were largely immune to that Treasury trend due to volatility at the beginning of the pandemic.  Mortgage rates simply weren’t able to drop as quickly as Treasury yields and have been closing the gap ever since.  The cushion is increasingly thin these days, but not so thin as to prevent the mortgage market from faring better in the face of bond market weakness (bond weakness = higher rates, all other things being equal). 

The other key factor in play is that the price of mortgage-backed bonds (the stuff that actually dictates mortgage rates) have simply outperformed Treasuries as the latter suffer more directly from increased Treasury issuance (used to pay for stimulus and other government spending).  

When will this change?  To a large degree, the change has already begun.  Mortgages may not be as volatile as Treasuries but they are correlating more reliably in terms of the direction of movement on any given day.  With that in mind, tomorrow’s 10yr Treasury auction may be the next source of guidance for both sides of the market.

Source: mortgagenewsdaily.com

Fannie Mae reports rising confidence in housing market

Following two months of steady declines, Fannie Mae’s Home Purchase Sentiment Index (HPSI), a composite index designed to track the housing market and consumer confidence to sell or buy a home, rose in January.

The HSPI rose 3.7 points last month to 77.7. Though it’s undoubtedly a positive sign, the HPSI has yet to recover to pre-pandemic levels and is still down 15.3 points year over year.

Doug Duncan, Fannie Mae’s chief economist, noted a slight chasm has formed in confidence among lower and higher- income groups based on recent stimulus and fiscal policies.

According to Duncan, this newfound optimism in lower-income borrowers and renters could indicate those who have been more negatively impacted by the pandemic may be starting to feel the economic recovery.

“Among homeowners in higher income groups, however, the other five components of the index remained relatively flat or slightly negative, suggesting to us that some consumers are waiting to gauge the effectiveness of any new fiscal policies and vaccination distribution programs on both housing and the larger economy,” Duncan said.


Making housing more affordable by bridging the affordable supply gap

In the last few years, the number of existing single-family homes for sale has decreased. But home prices have increased. To make homeownership a possibility for everyone, there needs to be a higher supply of affordable homes.

Presented by: Fannie Mae

Overall, January’s housing market confidence jump was largely driven by renewed optimism for prospective home sellers, after December’s increasing home prices and tight inventory left homeowners weary that 2020’s record sales may not roll in to the new year. However, the percentage of respondents who say it is a good time to sell a home increased from 50% to 57% in January, while those who believe it is a good time to buy remained unchanged at 52%.

Even though buying sentiment stood idle in the first month of 2021, mortgage applications jumped 8.15% from the week ending Jan. 29, breaking a two-week streak of decreases, according to the Mortgage Bankers Association.

And borrowers are still relatively unsure of how long elevated home prices will hold. The HPSI reported 41% of respondents expect home prices will go up in the next 12 months – unchanged from the month prior – while those who believe it will go down increased from 16% to 17%.

But even if those prices do rise, borrowers can still save on the record low rates the industry has become accustomed to. The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 8% to 9%, while the percentage who expect mortgage rates to go up increased from 43% to 45%.

Though economists are fairly certain all signs indicate to rising mortgage rates, experts said it won’t be a sudden jerk reaction but rather a slow build that will force its way over 3% later in the year. Regardless, LO’s made insane money in 2020 thanks to record low rates, with the jury still out on whether they can swing it again in 2021 if refi’s begin to fall with rising rates.

But rising rates are a sign of a recovering economy, and though that recovery may look slow, the housing market is showing signs its already occurring.

The percentage of respondents who say they are not concerned about losing their job in the next 12 months remained unchanged at 75%, while those who are concerned fell from 25% to 24%. And the percentage of respondents who say their household income is significantly higher than it was 12 months ago increased from 20% to 21%, while the percentage who say theirs is significantly lower decreased from 18% to 14%.

January’s unemployment numbers weren’t overly impressive to economists, with the unemployment situation virtually unchanged for the month.

“The number of people on temporary layoff fell slightly in January, while the number of permanent job losers rose, a troubling sign. On the other hand, the number of people working part time but who would prefer full time employment also fell slightly, a positive indicator of labor demand,” Duncan said.

Source: housingwire.com

UWM CEO Mat Ishbia to headline Spring Summit

United Wholesale Mortgage CEO Mat Ishbia will be featured in the keynote session at HousingWire’s Spring Summit on March 4. In a one-on-one discussion with HousingWire CEO Clayton Collins, Ishbia will discuss the way UWM responded to the COVID crisis, the decision to take his company public and the future of the mortgage broker model.

UWM is the second-largest mortgage originator in the U.S. and the largest wholesale lender, originating $54.2 billion in closed loans during the third quarter. The company made its public debut on Jan. 22 through a merger with a special purpose acquisition company, which injected $925 million back into the company. UWM had already raised $800 million in a debt offering in November.

Ishbia, who has been working for years to increase the mortgage broker channel, said UWM will use the cash infusion to educate consumers and grow its tech stack to make the mortgage process faster, easier and cheaper for brokers and customers.

The focus of the Spring Summit is The Year-Round Purchase Market. Record low rates led to a banner year for mortgage lenders in 2020, and with a demographic tsunami of Millennial homebuyers entering the housing market, this year is expected to be just as incredible.

We’re bringing together experts who can speak to the topics that are critical to your success at this year’s Spring Summit, including:

  • What mortgage tech is solving now
  • Servicing challenges in a pandemic period
  • Operational strategies in the current market
  • The brave new world of valuations
  • eClosing/RON update
  • Mortgage disruption outlook
  • A new regulatory regime

We’ve also got sessions on increasing minority homeownership, the economic outlook, lessons from local markets and more.

As with all our events, we’re bringing together some of the brightest and most successful people in mortgage, real estate, compliance, security, technology and regulation to offer their insights on what’s happening right now and what’s coming next.

The 2021 Spring Summit is designed for our HW+ premium members, who get access to all HousingWire virtual events, long-form digital content published weekly, an exclusive Slack community and more. Sign up for HW+ membership here, or get event-only access for your company or team here.

Source: housingwire.com

Mortgage rates drop even lower to new record of 2.65%

The average U.S. mortgage rate for a 30-year fixed loan fell two basis points this week to 2.65% – the lowest rate in the Freddie Mac’s Primary Mortgage Market Survey’s near 50-year history. This week’s mortgage rate broke the previous record set on Dec. 24.

With this week’s record drop, there have now been 22 consecutive weeks when average mortgage rates have been below 3%, and this is the 17th time this year rates have broken a record.

The average fixed rate for a 15-year mortgage also fell last week to 2.16% from 2.17%. A year ago at this time, the 15-year FRM averaged 3.07%.

Despite a full percentage point decline in rates over the past year, housing affordability is slipping as these low rates have been offset by rising home prices, according to Sam Khater, Freddie Mac’s chief economist.

“The forces behind the drop in rates have been shifting over the last few months and rates are poised to rise modestly this year. The combination of rising mortgage rates and increasing home prices will accelerate the decline in affordability and further squeeze potential homebuyers during the spring home sales season,” Khater said.


Low mortgage rates fuel the demand for valuation and settlement services  

VRM Mortgage Services CEO shares how the company is navigating a difficult year, and how its services are impacted by the different national, state and local directives on foreclosure.

Presented by: VRM Mortgage Services


This year’s record low rates may be setting a new norm.

Len Kiefer, Freddie Mac‘s deputy chief economist, noted every decade since the 1980s experienced a 2% drop decade-over-decade. With rates sitting at close to 12% nearly 50 years ago, declining patterns may mean 30-year mortgage rates could average 2% the rest of the 2020s.

“Even just a year ago, that didn’t seem probable, and it’s certainly not my baseline forecast, but we’d have to acknowledge that there is a chance rates could continue their secular decline,” Kiefer said.

However, news of Democrats having won control of the Senate on Tuesday has some economists shifting gears.

The prospects of increased spending and deficits will likely put upward pressure on mortgage rates as the year progresses, said Mortgage Bankers Association Chief Economist Mike Fratantoni. In turn, Fratantoni estimates the massive refinance wave lenders have been riding may be cut short.

Source: housingwire.com