Weekly Mortgage Rate Update- 09-24-24
If I told you mortgage rates rose after the Fed cut their rate .50%, you probably wouldn’t believe me. Yet, here we are.
It has been a small move up, but its not what most expected and consumers are confused. The relationship between the Fed funds rate and the mortgage rate is not well understood by the public.
The Fed fund rate is important. It sets the overnight borrowing rate between banks and therefore sets the floor for all rates. But it’s a short term overnight rate and mortgage rates are long term bonds. They respond to similar data which is why they are often confused.
Mortgage rates are set by the bond market. Bonds move in anticipation of future economic and inflation outlooks. Mortgage rates had already improved on the changes in the economic outlook that showed unemployment rising and the inflation rate going down. Future mortgage rates will be determined by changes in this outlook. This also is what impacts Fed rate policy and causes the confusion in the relationship between the mortgage rate and Fed rate.
Not to get too much into the weeds but there is another factor affecting current mortgage rates that could cause them to improve, even with no other changes in economic conditions. I have mentioned before that there is a higher than normal spread between the 10 year treasury and the 30 year mortgage rate. The “spread” is just the difference between the two. It began when the Fed stopped being the largest purchaser of mortgage bonds in 2022. The remaining investors in the space require a higher rate of return than they historically received. Over the past few months that spread has been starting to shrink - meaning lower mortgage rates. A mortgage bond comes with the risk that the homeowner with a 7% rate might refinance to 5%. The closer mortgage rates get to our “new normal” for rates- whatever the market thinks the mortgage rate will be longer term. The lower the prepayment risk will be. Making it a more attractive investment will reduce this spread. It already has, last year the spread was about 3.3% and now it is approximately 2.5%. Possibly indicating we are getting closer to a new normal in mortgage rates. But there is still room for more improvement in the spread. Historically it has been 1.8% which is .70% lower than we are currently. Yes, there is room for rates to improve further.
This week we have PCE inflation reading on Friday. Inflation is expected to rise 0.2% for the month to an annualize rate of 2.7% on the core. These are the reports that change the outlook and move rates, so we will be watching for this release.
You should have received an evite for our annual Woolgrower’s luncheon. Hope you can attend!
|
Loan Type |
Conventional 30 year |
Conventional 15 year |
FHA 30 year |
VA 30 Year |
|
Interest rate |
5.875% |
5.00% |
5.25% |
5.50% |
|
APR |
6.027%* |
5.313%* |
6.272%** |
5.615%*** |
LICENSED BY THE CALIFORNIA DEPARTMENT OF REAL ESTATE LICENSE A division of TYKY (DRE #01919683) (NMLS LICENSE #257773)
RATES ARE CURRENT AS OF 09-24-2024. SUBJECT TO BORROWER APPROVAL, FICO SCORE, LTV AND PROPERTY TYPE
*APR IS BASED ON ESTIMATED FINANCE CHARGES OF $6935
**APR IS BASED ON ESTIMATED FINANCE CHARGS OF $10,969 THIS INCLUDES FHA MORTGAGE INSURA
NCE PREMIUM
***APR BASED ON ESTIMATED FINANCE CHARGES OF $8343
* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.