Mortgage rates fell. Then mortgage rates rose. Then mortgage rates fell again.
What the heck is going on out there? Bank runs, bank failures, no more Fed rate hikes?
It’s called uncertainty, which leads to volatility in everything from stocks to bonds and mortgage rates.
So if you’re not sure what’s going on, join the club. No one quite knows, which is why you’re going to be seeing a lot of movement in all directions.
And for that reason, you need to be on top of your game if you’re even remotely thinking about taking out a home loan.
Keep an Eye on the Stock Market and 10-Year Bond Yield
Mortgage rates can be pretty complex, but there a few simple things to look at to predict their direction.
Generally, if the stock market is falling, so are mortgage rates. The two tend to move in tandem.
The thinking is bad news and/or economic uncertainty brings down stocks and mortgage rates.
Conversely, bond prices go up as investors seek so-called “safe haven” bonds. That pushes down the associated yield.
A good bellwether bond yield to keep an eye on is the 10-year treasury because it has a similar maturity to a home loan (paid off in a decade or so).
It was priced around 4%, but since this bank failure business got started, has fallen closer to 3.5%.
To my point about ups and downs, it went from 4% to 3.75% to 3.5%, then back to around 3.75%, then back to 3.5% again.
In the process, the 30-year fixed fell back below 7% and was priced closer to 6.5%. And individual lenders are in the 5s for certain scenarios with discount points paid.
Bad News Is Good News for Mortgage Rates
Mortgage rates tend to thrive on bad economic news. So if the stock market tanks, or unemployment rises, mortgage rates should theoretically improve.
Basically, just keep an eye on major economic headlines. If more banks fail and/or the stock market craters, chances are the 30-year fixed will get cheaper.
The one wrinkle here is if things get super bad, it could dislocate the secondary market for mortgages and put lenders under stress.
So you want just the right amount of bad news to keep banks/lenders functioning, while pushing interest rates lower.
The bank failures that occurred recently, along with contagion fears, have served as this bad news lately.
However, banks and lenders don’t want to get caught on the wrong side of things. So my guess is they’ll continue to price conservatively.
They aren’t going to go out of their way to slash rates for fear things could turn quickly. This is all still a very fluid situation.
There Is a Lot of Rate Dispersion Right Now
That brings me to another important point. With markets in disarray, mortgage rates are seeing a bigger range.
In other words, you might come across a rate in the 5s with one bank and 6% at another. Each company might have its own comfort level and appetite.
This means you have to shop more right now to ensure you find the lender priced below the competition.
When markets are calm, rates tend to exhibit less dispersion, so it might not matter as much.
If you don’t believe that, just visit a few big banks and/or mortgage lenders’ websites. Check out their daily mortgage rates.
You’ll might even see rates up to 1% apart depending on the companies and product type.
Jumbos Seem to Be Priced Much Lower Than Conforming Loans
Another thing to consider is jumbo vs. conforming pricing. During normal times, conforming loans that meet the standards of Fannie Mae and Freddie Mac tend to be cheaper than jumbo loans.
But for a while now, jumbo loans have been the cheaper option. At one big bank, I’m seeing a 30-year jumbo at 6% and a 30-year conforming loan at 5.375%.
That’s a huge difference. Of course, you can’t usually control your loan amount, but if you’re close to the threshold, jumbo might be the cheaper route.
FYI, the 2023 conforming loan limit is $726,200 for a one-unit property, and even higher in high-cost areas.
Along those same lines, purchase loans are pricing much lower than refinance loans with many banks.
However, this can vary from company to company, so again, put in that research and shop around.
Your Rate Quote Might Only Be Good for a Few Hours
If you weren’t aware, mortgage rates change daily. And at the moment, they can change even more rapidly. Intraday isn’t out of the question.
There’s just too much uncertainty at the moment. While not as volatile as stocks per se, mortgage rates tend to change each day based on market conditions.
So if you get a quote, ask how long it’s good for. And even then, don’t expect it to be available tomorrow, or even later in the day.
Mortgage rates have seesawed all week, benefiting some and hurting others, depending on if/when they locked.
Remember, until your mortgage rate is locked, it’s just a quote, which is subject to change at any moment.
It’s kind of like a stock purchase. Until you hit submit and actually buy it, its price can change.
In terms of predictions, if you believe things will get worse economy-wise, mortgage rates may keep falling.
But if you think the Fed will raise rates next week and things will settle down, mortgage rates may climb back toward 7% again.
Either way, current conditions are not for the faint of heart, though good opportunities (due to pricing swings) are going to be much more plentiful.