Disclaimer - I understand that some mortgage rates are dropping a little.
When I bought my house in October 2005, the economy was doing OK, and the best rate I found was 5.2% on 30-year fixed. Now the fed funds rate is near zero, and still as I look around, I don’t see very much below 5.6%.
I don’t expect a direct variation, but how can it be that everything has gone to hell in a shithole yet the rates are still higher than they were when the economy was stable and on the uptick?
A few reasons come to mind:
[ul]
[li]Less credit: Though the federal rates are low, the credit markets are still quite timid, which means less capital available to banks who want to lend[/li][li]Less demand: far fewer people are buying or refinancing houses[/li][li]Less supply: Lots of banks and lenders have folded; those that haven’t are significantly scaling back their retail lending[/li][li]The failure of Fanny and Freddie introduces some doubt about whether lenders will be able to easily sell their debt, making lending riskier[/li][li]Rates are never likely to go much below 4 or 5 per cent anyway, because they can probably make that much just buying treasuries instead[/li][/ul]
I don’t understand your comment about lower demand. Lower demand should mean a buyer’s market, with the cost to the borrower decreasing.
I also don’t understand the comment about treasuries. They’re investments, of course, but when you need a place to live you can’t move into a T-bill.
The part about lower supply does make sense… maybe it’s balancing out the other factors.
Yeah, but if demand and supply are reduced, prices will stay (roughly) the same. This is one possible reason why there hasn’t been much change in mortgage rates.
You can’t, but your bank can. If mortgage rates get too low, lending to the gummint looks more attractive than lending to you.
There was a news report not too long ago that in a just-concluded Treasury auction, the rate actually went slightly below zero for a while, but later edged back slightly above zero. By slightly, I mean about .01 %. So T-bills are essentially not paying any interest at all these days.
So T-bills are not a better return than a mortgage, although many financial institutions are investing in them (T-bills) anyway, just so they can show a rock-solid, conservative portfolio to their boards of directors.
The proximate answer is that banks are in a conservative mood these days. Mortgages are seen as risky, so they aren’t aggressively attracting them with lower interest rates. Instead, they’re putting their money into stable investments such as Bernard L. Madoff Investment Securities.
Thanks all.
Note that there is overhead in managing a mortgage as well as having to pad the rate to take into account covering defaults. The latter is of course a big issue nowadays. No doubt they are also worried that inflation might spike sometime down the road. (15-30 years is forever in financial terms.) So you’re not going to get a 2% mortgage.
I’ve been looking into refinancing, and they are dropping. I’m wanting a 30 year at 5-5.25% with no points, and it’s looking like it’s getting there.
Was the 5.2% you were quoted in 2005 without any points? I’m not exactly a financial wizard, but I’ve never seen rates this low before.
It was between 5.2 and 5.3% with no points. I didn’t take it because the lender struck me as a bit shady. What I actually ended up getting elsewhere was 5.375% on a 30-year fixed with no points. I don’t see that anywhere now, but maybe I’m not looking hard enough.
Wells-Fargo is quoting 4.875% for 30 year fixed right now. That’s with 1 point, so I’m guessing it’s slightly higher if you don’t want to pay the point.
Yesterday I locked in at 5.125% with about a 1/3 pt origination fee. Now that I’m locked, I’m fully expecting rates to go even lower.
I just locked in for a 30-year fixed rate at 4.75%, paying 1 point. I never thought I’d see a rate that low.
After seeing this thread, I called up the banker I’ve used for my mortgages. He says that currently for a 30year fixed, non-jumbo, 25% down mortgages, I’d be looking at 4.5% to 4.75%, with 1% origination fee.
Hmm. Might be time to refinance.