R.A.T.E.S: Decoding This Week's Dramatic Mortgage Rate Surge
Breaking News: Jobs Report Shocks the Market
I am kind of a nerd, and I like following how economic reports impact my industry, and this week didn’t disappoint! The latest jobs report landed with seismic force, triggering a rare and significant shift in the mortgage landscape:
Rates skyrocketed by 0.27% in just 24 hours
The average 30-year fixed rate leaped from 6.26% to 6.53%
This marks one of the largest single-day rate hikes in recent history
I know it sounds scary, like “OMG, rates increased,” but keep in mind that they change daily and will settle down again. I use this blog to report what happened in the past week and how it influences us at this very moment. By Monday, we will be on the roller coaster again.
The Silver Lining: A Market Perspective
Despite the jarring increase, let's zoom out:
Current rates still sit below their recent peaks
We're looking at levels last seen in mid-August
See perspective, it’s a powerful thing.
Real Impact: What This Means for Your Clients
Consider a $580,000 loan:
Old rate (6.26%): $3,573 monthly payment
New rate (6.53%): $3,677 monthly payment
The difference: An extra $104 per month or $1,248 annually
This shift could redefine "affordability" for many homebuyers, so I will be watching the mechanics of the mortgage-backed security market closely for any signs that it might further move to the worse. If needed, I will touch every pre-approved buyer to make sure their qualifications stand.
The Mortgage Market: A Complex Machine
To comprehend why rates can sometimes move so dramatically, let's delve into the structure of the mortgage bond market:
Mortgage-Backed Securities (MBS): These financial instruments play a crucial role in determining mortgage rates. Unlike U.S. Treasuries, MBS has unique characteristics that influence its pricing. But keep in mind that the flow of money slinkies in between the stock market and the bond market, MBS being closer to bonds.
Early Payoff Potential: A key difference between MBS and Treasuries is that mortgage borrowers can pay off their loans early through selling, refinancing, or other means. This introduces an element of uncertainty for investors and they are more volatile because of it.
Rate Buckets: MBS rates are offered in 0.5% increments, creating 'buckets' of rates. For instance, rates between 6.75% and 7.125% might fall into two different buckets.
Investor Preferences: Generally, investors prefer mortgages in lower rate buckets, as these are less likely to be refinanced when rates fall, reducing the risk of early payoffs.
Lender Profitability: The choice of rate bucket can significantly impact lender profitability. For example, this week, a rate of 6.625% generated approximately 10% more profit for lenders compared to a 6.75% rate.
Again, I know it's not the most exciting, but my self-proclaimed job is to educate you. Armed with this insight, you're equipped to guide your clients through the mortgage rate rollercoaster with confidence and expertise.
Check out my next blog on The Importance of a Cross Qualification!