Bond interest rates drive mortgage interest rates, not the Fed
Economists are likely to look back on the decade that started in 2007 with incredulity. The housing crash, financial meltdown, anemic recovery, market volatility and jumbo loans at lower interest rates than conventional mortgages will all be studied for their utter strangeness.
But for those who need a jumbo loan, there is dancing in the street. The stock market “correction” of 2016 has seen a flight to safety, and thus bonds are up and interest rates are down. As of January 20, jumbo 30 year fixed mortgages are at 3.68% compared to a 12 month low of 3.55.
If you are reading this during the week of January 18, you may want to call Bill Rayman now and discuss a refinance of your jumbo loan. In fact, here is a really amazing idea. If you currently have a conforming loan, but your home has increased in value to the point where you could qualify for a jumbo loan, you could refinance for the larger amount, and qualify for the amazing low interest rate.
You may even want to refinance your conforming loan whether you can get a jumbo loan or not, as those rates are once again below 4% at 3.84. You might want to refinance in order to drop your interest rate and therefore your payments. Or you may want to refinance for the traditional reasons of using the money for college, loan consolidation, home improvements, or investments.
How long will rates stay this low?
With the Fed action last year raising interest rates, the current drop in mortgage rates was not expected. However, mortgage rates are tied to bonds, not federal funds rates. Thus when the stock market drops 10% you can expect investors to scramble out of stocks and into bonds. That is what has happened.
When the stock market starts back up, and investor confidence improves, those same investors will likely pull funds from the bond market in order to take advantage of an expected positive wing in stocks. This will send bond interest rates up, and mortgage rates will have to follow. Could this happen in January, February or March? Maybe. Or it might be much later this year.
Could rates go lower? Yes. There are those who are suggesting that the stock market could fall another 10% into bear territory or worse. If this happens, there is very likely going to be further downward pressure on interest rates.
You can take this prediction to the bank
If the January stock market fiasco reverses quickly and economic statistics, especially earnings, come in at acceptable levels, the opportunity for low mortgage interest rates will be over, probably for a very long time. Even more so, if we do have a bear market, that will presage a likely recession later in 2016. At some point in 2016 or 2017 the economy and the market will likely start to recover from any such recession. If that scenario plays out, there will be lower interest rates for a while, and as the recovery happens, mortgage interest rates are likely to return to historic levels in the 6% range and never return to these historic lows.
If you would like to talk to Bill Rayman about a mortgage of any kind, call him any time of the day or night to get the ball rolling. (424) 354-5325
mortgage broker for home loans and mortgage banker
12121 Wilshire Boulevard, Suite 350
Los Angeles, CA 90025
Phone: (424) 354-5325