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In 2008 Mortgage Industry largely caused the crisis that led to the Great Recession, in 2020 it’s a mere innocent bystander that is getting beat.
All kinds of asset markets (Mortgage Bonds, Treasurys, Stocks, even Oil, and Commodities) are in an unprecedented, unchartered territory where the traders have no clue what to do with them.
Let’s look at some numbers just in the last two weeks:
- VIX, which measures the volatility in the stock markets, rose from 13 to 75 (100 being the most volatile)
- The S&P 500 has dropped ~25%
- Oil prices have fallen from $51 to $31
- 10-year Treasury rates fell 100 bps to a record low then rose 30, ending at about .84%
- The Fed cut short rates by 125 bps bringing it to zero
When the US Population panics, it suddenly buys toilet paper despite not planning on using the restroom any more than normal, similarly, when the financial markets panic, they buy nothing and sell everything. It’s the herd mentality that’s the by-product of thousands of years of human brain evolution.
Mortgage rates haven’t been shielded to all these turbulence and volatility. According to Mortgage Banker’s Association’s latest weekly survey, 30-year fixed mortgage rates rose to 3.74% with 0.37 points and 15-year fixed mortgage rates rose to 3.10% with 0.37 points.
Freddie Mac’s Primary Mortgage Market Survey (PMMS) released on March 19th reported similar numbers. See the chart below.
However, these reports came before Thursday’s bloodbath in the Mortgage Bonds prices. In what might be the sharpest one-day drop in Mortgage-backed securities (MBS) prices, it dropped nearly 200 points. The fall in MBS prices is inversely correlated to mortgage rates, meaning a drop in Bond prices means a rise in mortgage rates.
Let’s take a look at the chart that shows MBS price movements since the Fed rate cut in early March.
The days with Red candlestick mean the mortgage rates went up that day and the longer the candlestick the higher the uptick was. As you can see Greens were few and far between pushing the mortgage rates to the highest levels in nearly a year by Thursday.
I did quick competition research to see what 2 of the top 3 mortgage lenders in the country were quoting currently. Here are the screenshots from Wells Fargo and Quicken Loans, both of them quoting >4.5% APR for a 30-Year Fixed Refinance Mortgage.
Our rates are almost always lower than those two lenders. So get a rate quote here customized to your situation.
So, if you are still thinking the Fed’s fund’s 0% rate = 0% Mortgage rate, you need to rethink that. I don’t blame you since the stupid media keeps driving that narrative. In this post, I have covered in detail why Mortgage Rates are not impacted by the Fed’s rates.
Fed is actually doing EVERYTHING it can to stabilize and hopefully lower the mortgage rates. As part of Quantitative Easing, it announced it will buy billions of dollars of Mortgage Bonds which typically improves the bond’s price and lowers the mortgage rates.
Not this time. The uncertainty of the future which includes a higher unemployment rate and lower real estate prices, and running beyond capacity because of rush of refinancing locks earlier in the month is making the lenders rethink about lowering the rates.
No one knows where the bottom with CoronaVirus is – how many states will shut down, how many people would lose their jobs, how much value would the real estate lose, how much liquidity crisis could there be for mortgage bonds and overall financial markets – you throw in all that unknowns and you get mortgage rates that continue to climb.
So, will the mortgage rates go down again?
Just a few days ago, I thought it was a matter of days before we would see the lowest rates again. Then, I was thinking we could be weeks away. As of now, frankly, I am not sure.
I still think the rates will go down from the current levels. But will we see 3.25% on 30-Year fixed anytime soon? Not likely.
If you were able to lock the low rates a few days back, just thank your stars if you are able to close on that rate. Given the disruptions, because of Social Distancing and Shelter-in-place, a lot of lenders, title companies, appraisal companies, and county recording offices are running at a bare-bones capacity or they are completely shut down.
Provide your Loan Officer/Processor with whatever they are asking in a timely fashion to at least improve the chances at your end to close on that rate.
For the rest of you, keep waiting, stay in contact with your Loan Officer and watch this space to see if the rates go down.
And when they do, don’t be stupid, don’t be greedy. Lock a rate that provides you benefits. Last time that super-low rates lasted all of 48 hours and given the continued volatility, this time it could be even shorter.