Mortgage rates take biggest jump in nearly two years; average interest rate today is 6.26 percent

Miami Herald ^ | 07-31-03

[Brian S]

If you wanted to snag a mortgage at rock-bottom interest rates, you've waited too long.

Mortgage interest rates, which plummeted in June to their lowest level in 40 years, took their biggest jump in almost two years in the week that ended Wednesday.

''The jump in rates throws cold water on the refinancing fire,'' said Greg McBride, financial analyst at Bankrate.com, in a telephone interview.

The rates on 30-year fixed mortgages are now the highest in nine months.

The average interest rate today is 6.26 percent, according to a weekly survey of the 100 largest lenders by Bankrate.com.

The lowest point was 5.28 percent in the week ended June 11.

The increase makes a huge difference to borrowers, who had become so accustomed to falling rates in the last 18 months that many people refinanced more than once.

Monthly principal plus interest payments at the rock-bottom rate would have been $554 on a $100,000 loan, compared to $616 at this week's average. Over the entire 30-year life of the mortgage, that's a $22,320 difference.

Borrowers have figured this out and backed off.

REFINANCING DROPOFF

Also Wednesday, the Mortgage Bankers Association of America reported that its weekly survey of mortgage loan applications showed a sharp dropoff in refinancing activity.

Just four weeks ago, there were 50 percent more refinance applications, said Jay Brinkmann, MBAA's vice president of Research and Economics, in a news release.

The sharp and swift decline in the bond market is to blame.

When bond prices drop, that has the effect of increasing bond yields -- the interest that bonds pay investors.

The sell-off of Treasuries began with Alan Greenspan's comments July 15 that short-term interest rates aren't likely to keep on falling. Bond traders took that to mean the government would have no reason to try to drive down long-term rates, either. There had been hopes the government would go into the Treasury market and buy back longer-term government bonds, thus sending interest rates lower.

BOND MARKET

Traders are also focusing on two factors that tend to increase rates: If the economy is getting back on track, that would raise the demand for money. Plus, with the growing federal budget deficit, traders fear a flood of new government bonds will be issued at higher rates in order to keep the government running.

All this has roiled the bond market, especially for 10-year Treasury bonds, whose rates are most closely pegged to mortgages.

Earlier this week, they were trading at the highest yields since last August.

Here's the longer-term trend: In January 2002, 10-year Treasuries were yielding more than 5 percent. By December, they were just above 4 percent. By mid-June, they hit a 45-year low of 3.07 percent, (McBride said).

On Wednesday, 10-year Treasuries closed with a yield of 4.31 percent.

Still, some lenders point out that just because you missed the absolute bottom of the interest rate decline, there's reason to still consider refinancing a high-rate mortgage.

''We're still close to a 40-year low,'' noted Harry Tomlinson, a senior vice president at Washington Mutual, in a telephone interview.

Indeed, the average mortgage rate is around 8 percent over the last 20 years, McBride said.

LOOKING AHEAD

Will rates continue rising? That's not clear. Ten-year Treasuries right now exceed MBAA's year-end forecast of 3.9 percent.

Bankrate.com's weekly survey of lending industry experts shows 45 percent of those surveyed expect rates to drop in the next 30 to 45 days. Another 33 percent expect them to remain the same. And the rest are betting on a continued uptick.

[ladtx]

I'm hosed. I'm in the process of selling a house now and won't be ready to buy until January or thereabouts. Just damn!

[JNB]

If rates hold at these levels, the re-financeing will go to 0 in very short order. I believe the average rate that homes are financed at right now is a tad under 6.4%.

[Ultrconservative]

I was wondering what that loud whoooooshing sound was.

It was the air deflating from the housing bubble....watch out below!!

[Ff--150]

recovery???

[JNB]

If the housing bubble pops, then the economy that has been held up almost single handedly by housing and the fact the consumer has been dramatically helped by their homes rising in value, will be led into a recession by housing and the consumers. The bond meltdown is a big story no one seems to pay attention to.

[CollegeRepublican]

I just got my starter townhome in a nice neighborhood at the bottom of the interest rate drop. 1st time homeowner, no PMI, 5.3%, not too bad I think. I do not see myself moving for the next few years so, I am not really concerned too much about the bubble.

[Mr. Jeeves]

I'm hosed. I'm in the process of selling a house now and won't be ready to buy until January or thereabouts. Just damn!

Don't worry - just wait until January, 2005. You'll get the same house for about 30% off.

[wzlboy]

Nailed mine...closed last week! % 5.00 30-yr fixed (no points) ;)

[LetsRok]

Nailed mine...closed last week! % 5.00 30-yr fixed (no points) ;)

Me too, but waited too long and got 5.125% fixed and 0 points. I refinanced twice this year.

[ladtx]

Don't worry - just wait until January, 2005. You'll get the same house for about 30% off.

I may try to wait it out and see what happens. I can park the money from the old house in cd's till then. The only problem is the wife, don't know if she can stand being cooped up in a 2 bedroom apt I'm in now for a year and a half after having a big house and yard for so long.

[Dems_R_Losers]

Well, the refi boom is over, for sure, but there is no reason for people to not buy houses, as rates are still historically low. My first home was financed at 9.75 percent in 1987, and I am now in the second refinancing of my current mortgage. The first mortgage I got when I bought this house was over 8%, then I refinanced it at 7 3/8. So a 6%, 30-year fixed rate is really good. I don't see the purchase market slowing down or values dropping at all, especially as the economy is picking up now. So all of you waiting for the so-called "housing bubble" to burst so you can gloat are going to be waiting a while. House prices will begin to level off as people start to see other investments becoming profitable again, but there is nothing to indicate a drop in home values. You have to have a serious recession, either regionally or nationally, for that to happen. Even 9/11 did not dampen the market in and around New York City and Washington, DC at all.

[Dog Gone]

Woo Hoo! I locked into a 4.375% refi two weeks ago.

I finally did something right!

[cspackler]

Sorry, but 6.26% is not the end of the world. Actually, those are still damn good rates. What's with all of the "sky is falling" stuff around here? Obviously, the refinance market will drop off. There is no way that a refi market is forever sustainable without some periods of higher rates.

[ladtx]

You're right 6.26% is a good rate today, particularly since the house I'm selling is financed at 7.25%. But there is no telling where the rates will be in 6 months or so when I'm in a position to buy again.

[JNB]

The only thing that kept real estate propped up after 9/11 was the fact rates were driven lower by all means, one big event was the shock elimination of new 30 year bonds at the end of Oct 01. The steady decline on home loan rates is what kept all of this together, with home loan rates going from around 6.8% in May 02 to 5.3% last month. The entire re-fi boom started in Fall of 2000, when rates peaked around 8.3%.

Now the rates are reversing course, and the bond traders have lost confidence in Greenspan.

[Steven W.]

the rates will assuredly be higher. However, keeping things in perspective, that means they'll be approximately 1/2% below where they were a year ago at this time. Note the doom & gloomers who were so clueless they didn't even see this coming a few months ago (when it was obvious) are now raising their hyperbole another notch.

[Steven W.]

bond traders have lost confidence in Greenspan.

Wrong - bond traders have renewed confidence in Greenspan - confidence that he was right when he said we were in the midst of economic recovery and confidence that he won't be doing all the funny business that the doom and gloomers claimed the Fed would have to or else we'd seen a 1930's style depression by this point. Greenspan pricked the bond bubble and got exactly the reaction he wanted (he even said as much in testimony in congress when some idiots actually asked if he expected the bond market bubble to deflate as rapidly as it has and he responded, obviously, yes). The next illogical argument of the bearish doom & gloomers to be punctured will be all this absurdity about housing bubbles and the like, unless you're aware of some reason why everybody in the country is getting ready to move somewhere and the place they've decided to go has free domiciles in which people can live.

[hopespringseternal]

Sorry, but 6.26% is not the end of the world. Actually, those are still damn good rates. What's with all of the "sky is falling" stuff around here? Obviously, the refinance market will drop off. There is no way that a refi market is forever sustainable without some periods of higher rates.

Anyone predicting the end of the world over a 1% uptick in interest rates needs to lay off the crack pipe.

But then the doom and gloomers are always predicting the end of the world. A couple of months ago falling interest rates were no doubt the sign of impending doom.

[cspackler]

But there is no telling where the rates will be in 6 months or so when I'm in a position to buy again

You are absolutely right, there is no way to know. So relax...

[JNB]

So what you are saying is that rising bond yeilds, in a enviroment where housing has like never before been so critical to the economy, a good thing? Steven, I do not think you quite grasp what would happen if Re-fis zero out, and housing activity is reduced. The consumers will no longer be as bold in their spending, and industries that depended on housing, from retailers, to construction to financials, will be severely impacted.

[Tijeras_Slim]

4.5% for me and Mrs. Slim. Went from a 15 year to a 10 (only had 10 to go anyway).

[bvw]

End of the world? Hardly. Barbara Tuchman's book "A Distant Mirror" talks of the aftereffect the Black Plague. At least that's what she intended when she started out. The aftereffect? Not hardly discernable. Instead she just wrote a most excellent narrative history about those times in general. A reccommended read.

Yet the Black Plaque was a devastating thing to live through. Horrible, terrible, a calamity. Didn't end the world. Just a bad, bad time.

And here we are, now in such a time, financially, I am pretty certain. Fortunes are in dizzying flight to chaos. The outcomes? Who knows. Good luck.

[hoosierskypilot]

The flip side is that if interest rates continue to climb (what goes up must go down, and vice-versa), then demand for housing goes down. That means prices (of houses) go down. (Or, reach their equilibrium.)

[Dog Gone]

Good deal!

[Brian S]

This info from yesterday's article on the slowdown of "cash-out" refinancing validiates much of what you said:

Cash-out refinancings have been a key source of money for U.S. consumers, which account for two-thirds of the U.S. economy. Cash-out refinancings and refinancings into a lower-rate loan have offered cushions for Americans hurt by layoffs and until recently a floundering stock market.

U.S. homeowners have converted about $50 billion of their home equity into cash in the first half of 2003, a small portion of the $7.7 trillion worth of equity value held in single-family homes, said Freddie Mac, the No. 2 buyer of U.S. mortgages.

The first-half cash-out level compared with $96 billion in all of 2002 and $83 billion in all of 2001, it said.

Further, there most likely isn't a pisspots worth of equity left in the US personal property holdings remaining to borrow against.

[sergeantdave]

From what I'm hearing about these McMansions, a 6.26% interest rate is the least of your worries.

Styrofoam and rebar now passes as masonry? Yikes! Better be wearing hardhats and chem-hazard suits while munching on your breakfast roll. And get to know an attorney so you can sue your fly-by-night contractor while you're sitting on your pile of rubble. Don't forget to keep med insurance updated.

Good luck...

[hopespringseternal]

So now you are comparing a 1% interest rate hike to the black plague?

Seek help.

[bvw]

Naw. Just reading the coffee grinds.