Mortgage Rates

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights mortgage rates.

• Mortgage rates touched a new low last week, with Freddie Mac announcing a 3.91 percent average rate on a 30-year mortgage. The shorter term 1-year and 5-year ARMS also reached historic lows with average rates at 2.80 percent and 2.86 percent, respectively.
• The shorter-term rate may decline a little further if the Federal Reserve reaffirms its goal of keeping the fed funds rate at essentially zero for a longer period than 2013. But some of the voting members have carefully hinted that they will watch economic developments before making further pronouncements of ‘low rates for an extended period’.
• The longer-term rates are less directly determined by the Federal Reserve and are more influenced by global bond investors. So far, bond investors have been comfortable buying U.S. government debt as well as U.S. government-backed Fannie and Freddie securities. Generally the movements in the 10-year Treasury yield lead to corresponding changes to the 30-year fixed mortgage rate (because investors know that a vast number of 30-year mortgages do not last for 30 years but are refinanced or a person moves into a new home within 10 years).
• Today’s 10-year Treasury is at 1.98 percent, which is about the same as last week. Therefore, expect no meaningful changes to the 30-year fixed rate mortgage this week from last.
• Most economists are predicting the 10-year Treasury borrowing rate to rise and to reach 2.6 percent by the fourth quarter of this year and 3.3 percent by the fourth quarter of 2013. If this is realized then the 30-year mortgage rate will be about 4.5 percent by the end of this year and 5.2 percent by the end of 2013.
• Meanwhile, global bond investors continue to shy away from Greek government debt. The 10-year Greek government borrowing rate is not 2 percent (like the U.S. or Germany) or 5 percent (like Spain and Italy) or 10 percent (like many developing countries), but 29 percent. As a result Greece is now evidently willing to go to the global pawn shop. That is, it will now borrow money by putting up some of Greek land and islands as collateral. That is the price of continually overspending money the country does not have.