Reader: What Should I Look Out For?by Tim Manni
A visitor to HSH.com submitted a question regarding which economic factors contribute to lower mortgage rates.
Reader: Considering the state of the current economy, which indicators should I be looking out for that would cause 30 and 15 year mortgage rates to drop to 4.5%?
There are a few reliable indicators of mortgage rates at the moment, yet the normal relationships between those indicators and mortgage rates have been interrupted by repeated intrusions of the government and others reasons
For its part, the 10-year Treasury still has some influence and can provide some indication of the trend for rates, but isn’t consistent. Following the prices of mortgage-backed securities is more explicit, but prices are hard to find (and also require a bit of understanding about how the bond market performs in order to interpret).
Besides all that, mortgage rates today aren’t specifically manipulated by the private market, but instead are at present levels only because of extraordinary government involvement in the market (most specifically,
the Federal Reserve and Treasury supporting Fannie Mae, Freddie Mac and
the FHA program in various direct and indirect ways). Absent that support, conforming mortgage rates — hovering now around 5% — would be holding in the upper 5% to perhaps about 6% range.
With that said, 15-year rates are averaging about 4.75% with low fees and 30-year rates about 5% with low fees. With the recent spike in volume, rates are more likely to firm up than fall for at least a while. To get us consistently close to your desired levels, we’ll need either a new (or expanded) government presence (possible, but fading in likelihood) or a sharp drop in origination volume, which would cause lenders to price more aggressively in order to attract business again (somewhat unlikely, given borrower response to rates at about these levels is already high).
That’s not to say it couldn’t happen, but if it does, it would likely be a short-lived dip, and you’ll need to be very ready to jump in to take advantage of it. To do so, you might wish to contact/select a lender, get your application at least partially started, and leave instructions for them to contact you to execute the contract if/when your “strike price” is reached.
Best of luck,
For a broader discussion, read our article “What Moves Mortgage Rates?“