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Mortgage Interest Rates Settle Down

Toward the end of last year investors in both the bond and stock markets experienced a period of anxiety as it appeared as if the Federal Reserve would be in an aggressive mood to continue to raise interest rates. The stock market had a particularly difficult December.

Then, statements from the Federal Reserve began to become more “dovish”, that is, it appeared as if the Feds would not be making several interest rate hikes in 2019, but were becoming more “data dependent”. In other words, the pressure came off the markets, stocks rallied, and interest rates for mortgages began to fall.

Currently rates for 30yr mortgages are in the low 4’s:  4.25 to 4.5 range is common.

Stocks of home builders have been rising along with the broad stock market, and there is increasing optimism that 2019 will be a good year for real estate.

The rental market continues to be “tight” and rental rates have been rising, along with home prices.

The easiest way to track the path of mortgage interest rates is to watch the price of the 10yr treasury notes, easily obtained on the major financial web sites. The 10yr treasury note futures contract reflects the opposite trend of interest rates. When the 10yr contracts are rising interest rates are falling, and when the contracts are falling, interest rates as rising. The 10yr (TY) hit a low on 10/5/18 and took another dip on 11/8. Since then, however, the TY contracts have been rising and mortgage interest rates falling, reaching a low on 1/4/19. Since then rates have been generally drifting sideways, indicating some stability in the interest rate market.

Hopefully, this stability will continue through the year.

Rising interest rates do matter

Today (10/4/18) the stock market took a big hit and most analysts said it was because the yield on the 10yr treasury notes was on the rise. Yields almost hit 3.2%. The 10yr is seen as a reliable guide for a broad measure of interest rates, and in particular, rates that effect mortgage lending.

Two years ago the 10yr yielded 1.727% and the low was reached in July of 2016 at 1.321%. A year ago the yield was 2.368%. So, interest rates have been rising as the Federal Reserve has been gradually raising rates in an attempt to “cool” an economy that is growing at over 4% on an annual basis. When the economy was perceived to be weak, the Feds kept rates low, and some argued too low. Now, rates are moving in the opposite direction.

As rates rise, the cost of borrowing goes up, making mortgages less affordable. And, rates on adjustable mortgages also rise, as they are pegged to various interest rate indexes.

While this effects the real estate market, this trend may also effect the rental market. If some people are priced out of the mortgage market, they might decide to rent. So, this environment might put additional pressure on the rental market and cause rents to rise. It’s still about supply and demand.

Homebuilding industry slowed by higher interest rates

The Federal Reserve has been raising interest rates this year and mortgage interest rates have been rising as well. This has been having an effect on the affordability of housing. One way to measure the health of the homebuilding industry is to follow the stock market symbol XHB – the SPDR S&P Homebuilders. This is an ETF (exchange traded fund) that one can purchase and track just like a stock. This ETF peaked in late January of this year and has been in decline ever since, although during the past couple of months the XHB price has stabilized. If interest rates stabilize here the market for new homes may stabilize as well. The XHB will tell the story.

New Web Site

Today (Aug 6th) we launched our new web site. Content is almost 100% identical to the older site, but the form is now modern and it automatically resizes to fit whatever device you use to view it. If you have any issues please feel free to send me a message and let me know what we can do to fix any problems or improve the site.

Tom Loffman