Mortgage rates drop below 5% for first time since April

[BumRushDaShow]

Source: CNN Business

Mortgage rates dropped for the second week in a row, falling below 5% for the first time since mid-April. The 30-year fixed-rate mortgage averaged 4.99% in the week ending August 4, down from 5.3% the week before, according to Freddie Mac. But that is still significantly higher than this time last year when it was 2.77%. Rates rose sharply at the start of the year, hitting a high of 5.81% in mid-June.

But since then, economic concerns have made them more volatile. "Mortgage rates remained volatile due to the tug of war between inflationary pressures and a clear slowdown in economic growth," said Sam Khater, Freddie Mac's chief economist. The up and down is expected to continue, he said. "The high uncertainty surrounding inflation and other factors will likely cause rates to remain variable, especially as the Federal Reserve attempts to navigate the current economic environment."

The drop comes as surprisingly positive reports for some economic indicators counterbalanced the talk of looming recession, said George Ratiu, Realtor.com's manager of economic research. "Without a clear direction, markets are confining mortgage rates to move within a tighter range, as the sharp upward push has moderated," he said. In response to high inflation the Federal Reserve raised its benchmark interest rate by 75 basis points last week, the second hike of that size in as many months.

The Federal Reserve does not set the interest rates borrowers pay on mortgages directly. Instead, mortgage rates tend to track 10-year US Treasury bonds. But they are indirectly impacted by the Fed's efforts to tame inflation. As for consumers, he said, they continue to spend, amassing a record $16.2 trillion in household debt according to data the Federal Reserve released this week

Read more: https://www.cnn.com/2022/08/04/homes/mortgage-rates-august-4/index.html

[underpants]

1. Refinanced during the pandemic. Dropped 1 1/2 points

Lowered our monthly payment by almost $500

Basically saved the refinance charges in 14 months.

Best decision I’ve ever made.

[BumRushDaShow]

3. I remember when one of my sisters bought a house back in 2003

when the interest rates had "bottomed out" at around 5.25% and she was just able to squeak in with a mortgage at that rate, and her and her hubby were happy as can be. Of course after the market crashed not long after and the interest rates dropped down into the 3% - 4% range, she was able to refinance to get something like 3.65%.

I think there is a perhaps purposeful "amnesia" by the business media about what the interest rates WERE from the '80s - early 2000s, and calling something that is 3 or 4% "high" is disingenuous. I remember getting my first "new" (factory) car back in '89, and having an 8% interest car note. My last car note (at a credit union 8 years ago) was something like 2.94% (and mostly due to my credit rating).

And I found it interesting that the OP article mentions "2.77%" for an interest rate and I expect the only consumers getting something like that are those with stellar credit ratings (which is not many).

[underpants]

6. Not stellar

But we are at 2.75. That was the standard going rate during 2020. I really just was curious but when our guy came back with that I was like Hell Yes!

VA loan. I’m getting those Army years back one way or another.

[BumRushDaShow]

7. I'd say HELL YES too!

And that's right - Uncle Sam owes ya!

[karynnj]

14. I bought a condo in 1981 and ignored the bank recommendation to get a 17.5 % 30 yr

mortgage. Taking a 3 year balloon offered at 16 percent. In August 1984, the new rate was about 8 percent.

[BumRushDaShow]

15. I know I posted in another thread

Last edited Thu Aug 4, 2022, 04:13 PM - Edit history (1)

that the early '80s was about the peak of the (edit) fed funds period (posted here - https://www.democraticunderground.com/?com=view_post&forum=1002&pid=16980296 and then I annotated for comparison).

[BumRushDaShow]

18. Yes thank you! Fixed.

I am trying to remember the last time I have even heard the term "Prime rate" mentioned in recent reports (used to be referred to a lot more in the past in mass media), but up it popped outta my brain here.

[progree]

20. Thanks! 😊

I haven't heard the prime rate much in the media in a long long time.

About the only thing I run across it is that in my brokerage accounts, I get notifications about the margin rates. The margin rates are a certain percent on top of the prime rates (the adder varies with the margin loan size).

[karynnj]

21. I appreciate your post then and on this one

As you documented, this is nothing like the early 1980s!

[progree]

23. I sure miss the interest rates that savers got back in old days

like 15% or more on a money market fund. 12% on a 6 year CD (enough to double its value over its term). And rates stayed good even as inflation dropped -- I remember getting a 9.5% CD sometime in 1990 or 1991.

Now I look at the yield on something like VICSX - Vanguard Intermediate Term Corporate Bond Index Fund

in the past 12 months the yield has only increased from 2.14% to 2.83%

I watch several other corporate or "core" bond intermediate bond funds and most of them are in the same ballpark or a little less. (Core funds include some U.S. Treasury and government agency bonds).

[progree]

2. One of those rare (?) cases where raising the Fed Funds rate results in longer term rates falling

e.g. 10 year treasury and mortgage rates. When bond yields fall, that means their prices rise. Stock prices, another asset, is also rising.

This is not how it's supposed to happen, according to Wolf Richter. It's the market "fighting the fed". The fed intends that long-term rates rise too and that asset prices ease.

What all this means is that the Fed will have to keep raising its Fed Funds rate "until the market gets the memo". That's not good because when it finally "gets the memo", it will probably overshoot in the opposite direction, squeezing the economy too much.

I'm not a fan of Wolf Richter, but well I listened to the entire 12 minute video clip, so thought I'd pass it on. (Unfortunately, there's no text version of it, I'm not a fan of watching videos because I can't skim and I can't copy and paste from one. But they say life sucks and then you die).
https://www.democraticunderground.com/111693892

[BumRushDaShow]

4. I know I have posted before

that what is going on right now - domestically, internationally, geopolitically, and even climatically, really has no "modern analogs" to bounce predictions off of.

I suggested the closest might have been the 1917 - 1919 period when there was WWI (and its aftermath), a nasty pandemic, and a couple years with extreme weather events that could impact many of the commodities like grains and livestock.

But other than that, we seem to be on a long and arduous road of continual swinging and missing or swinging and fouling the ball when it comes to trying to get close to "expectations". I think it's how the "artificial shocks" (pandemic and climate) are messing with the models.

[Mosby]

5. The overnight rate was close to zero

Now it's 2.33 after the fed raised it 4 times.

If banks are making lots of money, there is no reason to increase the prime rates.

That's what we're seeing now.

[BumRushDaShow]

9. I expect the banks are making lots of money

off of their credit card interest rates (where APRs may vary)!

What Is The Average Credit Card Interest Rate?


By Michelle Black, Robin Saks Frankel
Contributor, Editor

Updated: Apr 1, 2022, 9:00am


The Federal Reserve keeps tabs on the average interest rate that U.S. consumers pay for a variety of different financial products—credit cards included. In 2021, the average credit card interest rate in the United States on accounts with balances that assessed interest was 16.45%.

Of course, the annual percentage rates (APR) you pay on your own credit cards might not match up with the national average. Credit card APRs can vary widely based on a number of factors, from your credit score to your debt-to-income ratio and beyond.

(snip)



(snip)

https://www.forbes.com/advisor/credit-cards/average-credit-card-interest-rate/

[progree]

12. And those were the good ol' days - the table's last column says 2020 /nt

[BumRushDaShow]

13. Yup.

I think some states (like here in PA) have the rates capped at 25%.

[Baggies]

8. Housing is gonna get slammed soon.

This will, in turn, hurt many related industries.

[Mosby]

10. Mortgage rates are dropping, why would housing get slammed?

[Baggies]

11. Not as many can qualify for mortgages.

5.3% 30 yr fixed for $250K is $1388.
4.99% 30 yr fixed for $250K is $1341

Whereas, the above at 2.75% is $1021

That knocks a lot of people out who thought a year ago they’d be able to purchase a home.

Besides, the Fed is still scheduled to raise the prime rate, maybe more than once, before the end of the year.

[Mosby]

16. The feds have nothing to do with the prime rate.

They raise the overnight rate. That's the rate banks charge each other.

Housing prices are way too high, so maybe if there is a substantial correction, it will make up for higher rates.

[Baggies]

19. I worked for the Fed Reserve for 30 years

This will be a live and learn moment for you. Enjoy.

[oldsoftie]

22. Doubt housing will get slammed. Inventory was already low, so a slowdown shouldn't hurt

It should level things out better than where things HAVE been. IMO, for it to get slammed, we'd have a lot of homes for sale and few buyers and THEN get hit. But with low inventory even slower demand won't put a glut of homes on the market. Maybe the ridiculous prices will ease a bit, but thats not really a BAD thing.
Plus, banks no longer give out the horrible loans they were giving out 20 yrs ago. So foreclosures also shouldn't spike like 08