Bond market signals that mortgage rates may drop

The bond market has been sending slightly better news to mortgage borrowers the last few days as investors in securities carved out of home loans have been accepting lower returns.

Yields on Freddie Mac and Fannie Mae mortgage securities fell today for the third straight day, meaning the buyers are OK with lower rates on the loans backing the securities. The typical rate on a fixed-rate 30-year loan rose to 5.59% last week, up from a record low of 4.78% in late April, according to Freddie Mac.

Yields on Fannie Mae 30-year fixed-rate mortgage bonds dropped to 4.71%, down from 5.07% last Wednesday and the lowest since June 3. Freddie Mac bonds were yielding 4.78%, down from 5.15% Wednesday. On May 20, bond buyers were OK with returns of less than 4% on the securities.

Rising rates have throttled the home refinancing spree that took hold last fall and continued through the winter. While rates under 6% are still great by historic standards, the recent increase also made it tougher to qualify for home purchases, and higher rates generally can put the brakes on the economy.

The higher rates also contributed to an unexpected decline in confidence among U.S. home builders in June, according to a National Assn. of Home Builders/Wells Fargo housing survey out today.

Analysts had expected confidence to increase, but the builder group said anxiety over jobs and the economy, along with higher rates, had clouded the prospects for a housing recovery.

-- E. Scott Reckard
 
  

Comments

[Danny]

As with many things economic, this is a double-edged sword for the housing market. Bond yields (and mortgage rates) go up when the economy is improving and people want to dump more money into the stock market. Bond yields go down (as they are right now) when confidence is slipping and people think the stock market is headed downward.

So while mortgage rates go down, more important things like employment levels and retirement accounts are going to play havoc with the housing market.

[Jerry Powers]

It is inevitable that interest rates are going to rise dramatically. With the federal government printing so much money out of thin air we are going to see run-away inflation that will make the 70s seem like a day in the park. As a home builder I see some very bad years coming that will continue this housing slump. I recommend that people with the ability to do it to purchase a home now or they will regret not doing it in the coming years. There are deals to be had out there right now but sitting on the sidelines is only going to get you a sore butt!

[Laker]

Jerry Powers, You are a realtor. But.....
If we have run-over inflation, interest rates will rise, that will provide a lid on house prices as payment with higher interest would finance less house on same payment.
Now, we are long before wages go up to afford larger monthly payments to compensate....First wait till un-employment gets back down to 6% or less, we are still climbing up to 15% or more.

[Nelcisco]

Jerry Powers,
Great deals compared to what?
to prices during the peak of the market?
I guess if one campared $300k to $500k, thats a great deal.
Most people out there are on the sidelines not by choice
but because underwriters are killing their loan files almost as fast as its submitted, but I don't know why that so hard for some to understand. Unemployment is up, how are people going to jump in when all this is going on?

Please, please I've said this before, we need to be intellectually honest and called it for what it is.