On Wednesday, October 15, mortgage rates took an abrupt pitch downward. Today, October 27, rates have moved up and erased much of the discount.
The hefty price dip came after a perfect confluence of events. Might we see such a move again? It is definitely possible, and it would open up another opportunity for existing owners to refinance and potential owners to increase their purchasing power. Give us a call at 805.543.LOAN to set up a pre qualification appointment so that you can quickly take advantage of the next window.
(Note: mortgage interest rates are still very close to all-time lows. If you have mortgage insurance, have a rate above 5.0%, or aren’t sure if you can afford to purchase a home, give us a call at 805.543.LOAN to learn about the possible savings. The call is confidential and honest, and it won’t cost you a dime.)
Recapping the rate dip
Two weeks ago, several major stock indexes (Dow Jones, S&P 500) almost had their first proper downward “correction” (a drop of at least 10%) in nearly three years. Investors pulled back from stocks due to an assortment of worries: global economic slowdown, ebola, geopolitical issues, and the Federal Reserve’s negatively revised expectations for the U.S. economy. The volatile environment is a perfect one for mortgage rates. We cover all of this and more in last week’s column.
By the time the sell-off occurred, mortgage rates were already on their way down. The bond markets were closed on Monday, October 13, so lenders had been holding off making downward revisions from the previous week.
On October 15, as market volatility cranked into high gear, lenders finally priced in all of the changes from the previous week. All of a sudden, mortgage rates were at their lowest level in over 18 months. Mortgage rate prices were about 1.5 points lower than they were three to four weeks prior. A “point” is 1% of the total loan amount, so for a loan of $400,000, a “1.5 point drop” would be $6,000 in cash.
The low-rate window persisted for a little over a week.
Where we stand today
Today – October 27 – mortgage rates have moved up off this unexpected dip. Last week, the S&P 500 jumped 4.1% for its best weekly gain of 2014. The Dow Jones Industrial Average rose 2.6% over the week, and Nasdaq rose 5.3%.
When investors turn to stocks, money flows away from the “safe” bond market. Lower demand for bonds puts upward pressure on mortgage rates. (The 10-year Treasury yield is a quick and dirty way to track expected rate movement: a higher yield suggests higher mortgage rates, and vice versa). Click here to learn more about when – and why – mortgage interest rates move.
Rates could drop again if anything sets off the market into “sell” mode. Recent stock dips aside, we have still not seen a downward correction. Corrections come about once a year, historically.
Homeowners: to take advantage of the hefty savings offered by such a low rate “window” make sure to get pre qualified, so that your loan officer can lock in a rate when the time is right.
Last Week’s Data
- Existing home sales rose more than expected in September, up to a pace of 5.17 million for the year. Overall, sales have slowed in 2014 by 1.7 percent year-over-year.
- The national existing home median sales price of $209,700 is 5.6% higher year-over-year.
- Jobless claims continue to perform well. The October 11 week offered up 266,000 total claims, a 14-year low, and the October 18 week’s 283,000 claims kept the 4-week average of 281,000 at a 14-year low.
- New home sales are right around their fastest pace since 2008. The median sales price dropped 9.7% as sellers cut prices, which could account for the improvement in sales pace.
Loan Program Update
If you haven’t yet, be sure to check out the CCL Workforce Housing Loan Program. Median and low income borrowers are eligible to receive what could be a steep discount on their home loan.
This program is particularly effective for middle-credit borrowers who want to offer a down payment under 20% because it puts a cap on fees charged for such “riskier” loans. Read more here.
Central Coast Lending is a California mortgage broker and direct lender based on the Central Coast of California in San Luis Obispo County. Call us today at 805.543.LOAN or email us here to set up a free pre qualification. We are The Mortgage Experts: ask us anything!