With Helpful Fed, Mortgage Rates Head Lower for Everyone

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The stock and bond markets can be subject to a lot of volatility in this day and age. When the stock market has a bad day, with triple-digit declines, the bond markets usually have a good day. This means that rates tend to go lower when stocks sell off, providing a short window of opportunity to lock in a lower rate.

A year ago, almost all economists were predicting the 10-Year Treasury notes would be yielding 3 percent or more by the fourth quarter of 2014. The economists were wrong. On Oct. 15, the 10-Year Treasury note yield fell to 2.08 percent. This figure was around 100 basis points lower than a lot of economists were talking about several months earlier.

Mortgage interest rates which track the 10-Year Treasury yields went to their lowest levels since earlier last year. Rates on 30-year fixed-rate money were below 4 percent. Rates on 15-Year fixed-rate notes were around 3 percent. Rates on 7-year adjustable-rate mortgages were around 3 percent.

Rates have moderated in recent days to around 4 percent, but are still at the lowest levels in months.
The index value for the 1-Year LIBOR is currently 0.58. LIBOR has been coming down in yield for more than a year. Since the LIBOR index is the favored index for most adjustable-rate mortgages, when they adjust they will be going lower. (The common margin is 2.25 percent. Margin plus index equals 2.83 percent.)

Commodity prices continued to head lower. Oil prices have been in a recent free-fall. Prices were just above $80 a barrel, as we approached the last part of October. The high benchmark was $115. Gasoline is at four-year lows.

The drop in Treasury yields and the drop in commodity prices are related to the trouble in the European economy. The EU countries are fighting to stave off recessionary conditions. Deflation has become more of a concern then the specter of inflation.
The Fed announced an end to the buying of bonds and mortgage-backed securities in October. However, it added that it would be a while before it would be raising short-term rates.

These rates hold true for all buyers, from first-time buyers to buyers of multi-million-dollar homes. These rates are good for everybody. It remains an excellent time to buy a home or to refinance an existing one.

Bill Starrels lives in Georgetown, where he is a mortgage loan officer (NMLS#485021). He can be reached at bill.starrels@gmail.com or 703-625-7355.

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