People who are still hoping to refinance their mortgage or are shopping for a home got some good news the past two days, thanks to an easing of concerns over some of the factors that have been pushing up mortgage rates.
On Thursday, the Federal Reserve announced it would be staying the course on its economic stimulus program, reassuring investors who were concerned that jittery interventions could backfire and drive up rates in the long run. A scheduled auction of seven-year Treasury bonds that same day drew strong interest, reducing fears that demand for government debt was drying up, and sending interest rates on those bonds down. Finally, today's Commerce Department report on consumer spending showed increased personal savings tied with only mild price increases, signs that inflation is likely to remain low.
Treasury yields, mortgage rates closely linked
The result? Reassured investors have bid up the price of Treasury bonds, which equals lower yields (interest rates) on those bonds. And lower yields on Treasuries generally translate to lower mortgage rates.
This is especially true in the case of the 10-year Treasury bond, which is closely linked to mortgage rates. Yields on that bond had been rising for two months over concerns over inflation and that the Fed's economic stimulus efforts might slip out of control, bringing mortgage rates with them.
Yields on the 10-year bond dropped to nearly 2.5 percent in March, when mortgage rates hit their historic lows, but began climbing steadily in April, topping out two weeks ago at nearly 4 percent. Since then, yields have backed down again, and were reported at 3.50 percent this morning following the report on consumer spending.
Some improvement in past two weeks
Since then, surveys have generally showed 30-year rates backing off about a quarter point from their recent highs in the 5.75 - 6.0 percent range. It's not clear yet how mortgage rates are responding to the most recent news; surveys of 30-year fixed and other rates are issued weekly by a variety of entities, including government-backed mortgage lender Freddie Mac.
Many lenders do expect mortgage rates to continue to back off from their recent highs, though. A weekly Bankrate survey of mortgage lenders found that approximately half expect rates to go down in the next 30 days; compared to only one-quarter who expect them to increase. Unexpected economic developments could change that outlook quickly, though.
Rates can change dramatically from day-to-day, so borrowers are urged to get their applications and paperwork together in advance, particularly if they're looking to refinance. That way, when an attractive rate becomes available, they can act quickly to lock it in.