Luxury Homes | Luxury Real Estate | New JerseyLuxury Homes in New Jersey | With Top Broker Matthew De Fede

07
Jun 23

The Main Reason Mortgage Rates Are So High

The Main Reason Mortgage Rates Are So High Simplifying The Market

Today’s mortgage rates are top-of-mind for many homebuyers right now. As a result, if you’re thinking about buying for the first time or selling your current house to move into a home that better fits your needs, you may be asking yourself these two questions: 

  1. Why Are Mortgage Rates So High?
  2. When Will Rates Go Back Down?

Here’s context you need to help answer those questions.

1. Why Are Mortgage Rates So High? 

The 30-year fixed-rate mortgage is largely influenced by the supply and demand for mortgage-backed securities (MBS). According to Investopedia

“Mortgage-backed securities (MBS) are investment products similar to bonds. Each MBS consists of a bundle of home loans and other real estate debt bought from the banks that issued them . . . The investor who buys a mortgage-backed security is essentially lending money to home buyers.”

Demand for MBS helps determine the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Historically, the average spread between the two is 1.72 (see chart below):

Last Friday morning, the mortgage rate was 6.85%. That means the spread was 3.2%, which is almost 1.5% over the norm. If the spread was at its historical average, mortgage rates would be 5.37% (3.65% 10-Year Treasury Yield + 1.72 spread).

This large spread is very unusual. As George Ratiu, Chief Economist at Keeping Current Matters (KCM), explains:

“The only times the spread approached or exceeded 300 basis points were during periods of high inflation or economic volatility, like those seen in the early 1980s or the Great Financial Crisis of 2008-09.”

The graph below uses historical data to help illustrate this point by showing the few times the spread has increased to 300 basis points or more:

The graph shows how the spread has come down after each peak. The good news is, that means there’s room for mortgage rates to improve today.

So, what’s causing the larger spread and making mortgage rates so high today?

The demand for MBS is heavily influenced by the risks associated with investing in them. Today, that risk is impacted by broader market conditions like inflation and fear of a potential recession, the Fed’s interest rate hikes to try to bring down inflation, headlines that create unnecessarily negative narratives about home prices, and more.

Simply put: when there’s less risk, demand for MBS is high, so mortgage rates will be lower. On the other hand, if there’s more risk with MBS, demand for MBS will be low, and we’ll see higher mortgage rates as a result. Currently, demand for MBS is low, so mortgage rates are high.

2. When Will Rates Go Back Down?

Odeta Kushi, Deputy Chief Economist at First American, answers that question in a recent blog:

“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Fed takes its foot off the monetary tightening pedal and provides investors with more certainty. However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”

Bottom Line

The spread will shrink when the fear investors feel is eased. That’ll mean we should see mortgage rates moderate as the year goes on. However, when it comes to forecasting mortgage rates, no one can know for sure exactly what will happen.

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07
Jun 23

B&A: An “Eyesore” Laundry Room Gets a Luxurious Yet Practical Redo


The stunning upgrade didnt sacrifice a single bit of functionality in fact, it added to it.
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07
Jun 23

The Chic Non-Slip Rug I Wish I Bought Years Ago for My Kitchen (And It’s Easy to Clean!)


And it’s eye-catching accent wherever you place it.
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07
Jun 23

Casting Call! Atlanta, Austin, Chicago, Dallas, LA, & NYC: Have an area of your home that needs a mini makeover? Let a Designer Expert Help!


We’re looking to feature a trendy design enthusiast like yourself with a small  area in your home that is in need of a makeover for a partnership with a major home brand. These will be micro style moments that make a big impact without taking up a lot of space!If selected, you’ll receive new decor for your nominated space(s).
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07
Jun 23

Target Has Big Changes Planned This Summer — Here’s What You Need to Know


From new brands to drive-up returns and more.
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07
Jun 23

This $30 Box Fan Has More Than 4,500 5-Star Reviews and Comes in the Coolest Colors


You can finally upgrade from your boring white box fan!
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06
Jun 23

$8 Million Modern New Build In Los Angeles (PHOTOS)

This newly built modern home is located at 14319 Mulholland Drive in Los Angeles, California. It features approximately….

The post $8 Million Modern New Build In Los Angeles (PHOTOS) appeared first on Homes of the Rich.

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06
Jun 23

Real Estate Is Still Considered the Best Long-Term Investment

Real Estate Is Still Considered the Best Long-Term Investment Simplifying The Market

With all the headlines circulating about home prices and rising mortgage rates, you may wonder if it still makes sense to invest in homeownership right now. A recent poll from Gallup shows the answer is yes. In fact, real estate was voted the best long-term investment for the 11th consecutive year, consistently beating other investment types like gold, stocks, and bonds (see graph below):

If you’re thinking about purchasing a home, let this poll reassure you. Even with everything happening today, Americans recognize owning a home is a powerful financial decision.

Why Do Americans Still Feel So Positive About the Value of Investing in a Home?

Purchasing real estate has typically been a solid long-term strategy for building wealth in America. As Lawrence Yun, Chief Economist at the National Association of Realtors (NAR), notes:

“. . . homeownership is a catalyst for building wealth for people from all walks of life. A monthly mortgage payment is often considered a forced savings account that helps homeowners build a net worth about 40 times higher than that of a renter.”

That’s because owning a home grows your net worth over time as your home appreciates in value and as you pay down your mortgage. And, since building that wealth takes time, it may make sense to start as soon as you can. If you wait to buy and keep renting, you’ll miss out on those monthly housing payments going toward your home equity.

Bottom Line

Buying a home is a powerful decision. So, it’s no wonder so many people view real estate as the best long-term investment. If you’re ready to start on your own journey toward homeownership, connect with a local real estate advisor today.

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06
Jun 23

B&A: A Gut Reno Helps This Plain Bathroom Recover Its 1950s Charm


Theres a surprise lying underneath the tubs white finish.
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06
Jun 23

This $22 2-in-1 Tool Will Keep Your Mirrors and Shower Doors Streak-Free — Without a Spray Bottle


It’s a gamechanger!
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