I was right this time! The danger of predicting mortgage rates is that you will be wrong once in a while. Maybe even some of the time. Sometimes most of the time.
This time it looks like my observations last week were just about right. Downward pressure on stock prices and trouble in the world-wide economy have put upward pressure on bond prices, and yields are dropping. Given enough time the lower yields always show up as lower mortgage rates, and this is starting to happen now.
In the chart to the right you can see that yields on 10-year U.S., Treasury bonds have been falling steadily for three weeks now, with an occasional correction up, like today. But a clear trend appears to be emerging. The blue line represents the yield Fannie Mae requires for mortgages delivered to them 60 days from the date of the quote, and you can see that Fannie Mae is responding to the demand for bonds by dropping their yield requirement.
The green line represents actual rates that real people locked in at each week, as published by Freddie Mac. It’s a weekly number, therefore, looking backward, published on Thursday. This week the line will move a little further down if trends hold.
But notice the emerging spread between the blue and green lines. If the bond market settles down and holds, competition will tighten up that line. If the market becomes unstable in either direction, lenders will hold off on lowering the rates they offer.
So, if the stock market turns and races upward all bets are off – mortgage rates will likely come back up to 2015 highs.
If the stock market either settles in to a more sedate pattern or continues moving down, money will move into bonds, lenders will respond, and mortgage rates will continue to drop.
How far? Not to the lows we saw in spring of 2013, or even to the lows we saw in February of this year, in all likelihood. But for those of you who think you may have missed the boat, the water taxi just might be coming back for you.