Mortgage Rates in the 5%’s?

That’s right!  Thanks to the Treasury coming in to bail out and take over Fannie Mae and Freddie Mac, 30-year fixed mortgage rates dropped from the 6%’s to the mid 5%’s on Monday, and have now held there all week.  Earlier this year rates dropped even lower than this but weren’t able to hold on.  Will they stay this low for a pronlonged period of time?  Maybe. . . let’s look at the reasons for the drops.

When the governement came in and backed up the mortgage securities of Fannie Mae and Freddie Mac, it made those securities look more apetizing to Wall Street investors.  They started scooping them up, causing demand to increase, thus yields rose and prices dropped.  Now some say that just like our domestic investors are now finding these investments more attractive, so will foreign investors.  These foreign investors take longer to jump in, so if and when they do, the demand could continue to go up, causing prices to drop again and mortgage rates to follow suit.

Let’s hope this scenario plays out.  It is just what the nation’s slumping housing market needs.  Of course, our market here in Eastern Idaho is still strong, but we will also take any bump we can get.

Mortgage Rates and Hurricanes

It’s been a great week for mortgage rates here in Pocatello and Eastern Idaho.  We started the week at 6.25% on a 30-year fixed, 5% down payment conventional mortgage loan and are now ending the week at 6.00%.  A .25% drop is significant in and of itself, but it also gets us so close to interest rates in the 5%’s again.  It is also significant since we started the first of August with rates around 6.50%.  So hopefully this is a nice trend.

I believe the reason for this nice downward pressure on mortgage rates is due to the price of oil coming down.  Mortgage rates are tied to the bond market and the bond market hates anything inflationary.  High oil prices are definitely a risk for higher inflation, causing the bond market to react negatively.  In turn, so do mortgage rates.

An example of this was the aftermath of Hurricane Gustav.  There were fears the hurricane would wipe out or severely damage all the refineries and oil platforms along the Gulf of Mexico.  When the hurricane was not as bad as feared, the markets reacted positively assuming there would not be a negative affect on oil prices.  And thus, mortgage rates came down.

So pray for continued lower oil prices, and hurricanes that don’t pack a lot of punch.