Mortgage News

If the changing mortgage guidelines don’t bedevil you, changing mortgage rates will. 

It’s getting even tougher to shop for low mortgages rate because rates refuse to stay in any one place for very long.  The pie chart above puts it in perspective. 

The data is astounding — especially against the rate-change numbers from earlier this year.  It appears that mortgage rates are getting more volatile as the year goes on.

• For the 2 months ending May 19, 2008, rates changed on 68 percent of the days
• For the 2 months ending June 20, 2008, rates changed on 73 percent of the days

Today, rates change mid-day 82 percent of the time.

When you’re shopping for a home loan, remember that Wall Street often sets the rates — not the loan officer.  Your best protection from mortgage rate volatility, therefore, is to saddle up with a pro that understands how Wall Street works, and then be prepared to lock your mortgage rate as soon as possible.

This last step is critical. 

As an example, think back 6 months.  On January 23, 2008, 30-year fixed mortgage rates dipped to 5.125% and stayed there for fewer than 3 hours.  The 30 days that followed was a complete unravel job. 

Shoppers that were prepared when rates dipped in January now have very mortgage rates.  Those unprepared, however, missed the boat.

Volatility comes from economic uncertainty and that should continue at least through the rest of the year and probably deep into 2009.  The best protection from it is simple — make like a boy scout.

If you study mortgage rates long enough, you realize that "good mortgage rates" are under constant attack from a number of sources, including:

• World events and geopolitics
• U.S. employment data
• U.S. government and policy
• The price of oil and gasoline

And this is just a sampler. 

There are literally thousands of reasons why mortgage rates behave the way they do and it’s why there’s no perfect answer to the question everyone wants to asks:

"Do you think rates will be higher later this year?"

However!  One thing of which we’re certain is that the biggest threat to "good mortgage rates" is inflation.  When inflation pressures build, mortgage rates tend to build.  And, when inflation pressures fall, mortgage rates often fall.

This is because inflation erodes the value of the U.S. dollar which makes mortgage interest worth less to the bank that collects it.  The only way to compensate the bank for the diminishing value of its investment is to charge more interest. 

Hence, rates rise when inflation is present.

Earlier this summer, rising energy costs pushed inflation levels to their highest levels in many moons and mortgage rates followed.  Over the past 2 weeks, however, energy seems to be reversing its course. 

Since July 15, gas prices are down 17 cents per gallon nationwide.

Of course, you’ve probably noticed this already and don’t need me to point out the deeper implication, but when the cost of filling up your gas tank gets smaller, your personal Cost of Living gets smaller, too.  That’s a good thing because falling personal costs is the opposite of inflation and inflation is bad for mortgage rates.

Now, we can’t predict where interest rates will go tomorrow because too many rate-impacting factors are unpredictable.  Political events, for example.  But, we can watch some of the key indicators from everyday life and follow along at home.

Next time you fill your gas tank, take note of the gas price per gallon.  It’s not an exact rule, but if gas prices are falling, you can bet that mortgage rates are facing one less reason to go higher.

(Image courtesy: GasBuddy.com)

I am a regular participant in the Bankrate.com Mortgage Rate Trend survey and this week’s survey is now available.

As a reminder:

1. The survey is for conforming loans only.
2. I welcome emails from readers about purchase or refinance plans.
3. I twitter market updates a few times daily.  Follow me, if you want.

Anyway, on to the group’s predictions for the next 30 days:

• 15% of participants predict rates will increase
• 70% of participants predict rates will decrease
• 15% of participants predict rates will remain unchanged

I am predicting that rates will decrease over the next 30 days, but that doesn’t mean you should necessarily follow my advice when choosing whether to lock a rate, or float it.  My advice may not be appropriate for your individual situation.

From the Bankrate.com survey:

"The U.S. government — on purpose or not — upgraded mortgage bonds to Treasury Class.  Mortgage rates fall."

However!  No matter what the government does to prop up Fannie Mae and Freddie Mac, inflation remains as worrisome to mortgage markets as Captain Hammer is to Dr. Horrible.  Extra-hot inflation figures have pushed mortgage rates up by 0.250 percent since Tuesday.

I’ve been using Twitter to communicate the mid-day market shifts to clients and there’s been a lot of them.  It’s simple to set up and completely non-intrusive.  You’re welcome to follow me if you’d like the updates, too.