A rare and interesting market movement this week underscores what we’ve expected for the last few weeks: Low mortgage rates are going to be with us for awhile.
After plummeting to a new record low after Britain voted to leave the European Union (Brexit), 10-Year Treasurys jumped from 1.359 percent to about 1.54 percent this week as money flows from bonds back to equities.
But here’s the interesting development: Mortgage interest rates only ticked up slightly. The 30-year fixed-rate average rose just 1 basis point this week, the 15-year fixed-rate average dropped 2 bps and the five-year adjustable rate increased 6 bps.
Why is this important?
Treasury yields directly impact mortgage rates. As they rise and fall, so do interest rates on home loans. However, when Treasury yields tumbled after Brexit, mortgage rates fell at a slower pace. Now that yields have rebounded, we’re seeing mortgage rates remain near record lows set in November 2012.
Sean Becketti, Freddie Mac chief economist, revised his outlook for the rest of the year, predicting mortgage rates stay below 3.6 percent in 2016. Even as Treasury yields ebb and flow from crisis to calm, there’s strong sentiment now that external forces will keep rates low this year and possibly even through 2017.
“Turbulence abroad should continue to create demand for U.S. Treasuries and keep mortgage rates near historic lows; thereby, allowing home sales to have their best year in a decade, along with a boost in refinance activity,” Becketti told The Washington Post this week.
These factors continue to deliver a prime opportunity to serve borrowers eligible for a refinance or shopping for a new home.
But what about the stock market?
A day after the UK voted to leave the EU, stocks globally went on a tailspin and took a nosedive.
But in the weeks following, U.S. shares bounced back as analysts speculate many of the fears surrounding Brexit have subsided, encouraging investors to take risks again. This week, the S&P 500 breached new territory and closed at an all-time high.
What does it all mean for mortgages?
The consensus hasn’t changed: Now’s the time to buy or refinance and seize on historically low interest rates.
The effect of lower rates is creating an industry-wide boomlet, with the Mortgage Bankers Association reporting that mortgage applications went up by 7.2 percent last week.
The MBA records an 11 percent increase in refinance applications over the last week. That comes with a 64 percent boost in refinance share of overall mortgage activity.
Lower rates also embolden homebuyers, making them more confident in their ability to afford a mortgage and lowering the amount of qualifying income required to get a loan.
The takeaway? Plan for a months-long period of low rates. After expecting a rising-rate environment just a few months ago, borrowers now will see an extended period of low rates for refinance or purchase. Now is the time to lock in and save borrowers money.