The Sine Wave Path of Mortgage Rates

We’ve had a couple of great weeks with rates slowly dropping since the release of the dismal jobs report on August 1^st.  As a service to all my past clients, I calculate the potential savings they would see if they decided to refinance at the current rates.  It’s more complicated than it seems, as each borrower has a different loan amount at a different rate.  Add into the mix the type of loan they currently have, what type of new loan they would obtain, and if they will be eliminating mortgage insurance, further complicates the formula.  Every former loan I originated gets scrutinized.  What may be a huge savings to one homeowner, may be virtually nothing to another.

 

I’ve had some great conversations reconnecting with past clients these past couple of weeks.  Many have echoed the same thoughts that they want to wait till later in the year when they believe rates will get even lower.  What I have done of each former client is determine what in financial circles is called a strike point, to determine when it would be appropriate to pull the trigger on locking in that current rate and getting that refinance completed.

 

As with all financial products traded on an exchange, the price of the stock or the rate offered for a mortgage bond never moves in any direction, up or down, in a straight line.  While careful analysis can determine trends higher or lower, there’s a natural ebb and flow that savvy investors are aware of.  In stocks, they talk about “buying on the dip”.

 

 

The graph above tracks the interest rate for the US Treasury 10-Year Note for the past 6 months.  As you can clearly see, the movement up and down is never in a straight line.  The chart flows up and down with intermediary steps.  What you can see clearly are specific cycles of trends up followed by trends down.  But I don’t want to bore you with a lot of technical analysis.

 

One section of the graph I do wish to point out is the big sharp decline at the end of March, just getting into April.  The 10-Year Note was trading below 4.00% actually hitting an intra-day low of 3.90%.  That’s almost half a percent lower than the 10-Year rate as of close this past Friday.

 

Why is that important? 

 

Because on that day I had two clients with a strike rate they wanted to see become available to initiate a refinance.  I contacted both, and their decisions should be a learning lesson for you.  As you may have guessed by now, one decided to pull the trigger, and one wanted to wait for a further decline in rates.

 

To be exact, it was April 3^rd of this year when I reached out to my clients.  Trump had already announced his tariff plan, the stock market took a big hit, and there was a lot of uncertainty of the strength of the economy.  Treasury bonds and their corresponding mortgage bonds were the benefit of that pessimism.  That pessimism didn’t last long, because on April 4^th the BLS released the March Jobs Report showing robust strength in the US economy.  As you can see from the graph above, after that release of the jobs report the 10-Year Treasury Note marched all the way to 4.50%.

 

The client that initiated the refinance was thrilled.  The client that wanted a bigger bite of the apple was obviously disappointed.  I can’t fault the client that wanted to wait.  Their mistake is the same mistake too many investors and gamblers make.  And yes, I believe trying to determine what tomorrow’s mortgage rates will be is no different than one playing Blackjack at the Bellagio in Las Vegas.  It’s another form of gambling.  What is that mistake?  Letting emotions get in the way of your financial road map.

 

Don’t these two scenarios seem to be the same behavior?  Does one of them sound like something you’ve done too?

 

A person goes on vacation to Las Vegas to have fun and do some gambling.  Before their trip they determine a specific dollar amount they are willing to lose.  They get on that plane to the mainland knowing that if and/or when they hit that magic loss amount, it’s off to the buffets and some shopping.  But like too many others that fall victim to emotions, they quickly lose too quickly and decide to gamble more, only to lose that too.

 

The same can be said for a stock or mortgage strike rate.  I’m sure you’ve heard it from friends, “that stock was on the verge of taking off!  I should have sold when I had the chance.”  My second client on April 3^rd gave way to his emotions too.  He had a plan, but when that plan was put into his lap, he succumbed to wanting more.  For him, part of the plan was to eliminate his current mortgage insurance premium.  Getting rid of that is a bonus above a break in the rate.  Now having to wait to till rates fall further is like throwing money down the drain.

 

Rates will trend lower.  But be mindful that nothing moves in a straight line.  If rates drop another half-percent, it is estimated that almost 5-million mortgages could benefit from a refinance.  If you have a higher interest rate mortgage, or bought your home a couple of years ago with less than 20% down and have a monthly mortgage insurance payment, or if the sluggish economy the past few years has you buried in debt, a refinance may, if not already - but shortly, be a good idea for you.

 

If a refinance is on your future, consult a real mortgage professional that can review the cost of that refinance to determine the proper strike rate you need to hit.  The next step is to not deviate off that plan.

 

If you want to know if a refinance makes sense for you, either give me a call or shoot me an email.  I’ll respond with what information I need to give you an honest evaluation.

 

 

 

 

Sad Trend?

I came across this statistic the other day, and it really got me thinking of how much things have changed with our younger generations.

 

 

In 1950, over 50% of Americans age 30 were both married and homeowners.  Even as late as 1990, the rate was still almost 45%.  Today, just 8% of our population at age 30 are married and own a home.

 

This statistic does capture the rise in unaffordability of homes and how those just getting into their careers find it now impossible to own a home.  But the graph also captures something else deep and changing within the belly of our collective souls – young people don’t feel a need to get married.

 

Maybe we as parents have pushed too hard to promote “make something of yourself” before you do anything else.  I shared the same philosophy in my early years.  I wanted to be successful before finding the love of my life.  It has now become clear to me that part of what makes a relationship special and long lasting is that period of struggling to achieve.  When coming from nothing to finally becoming financially stable, sharing that time with your spouse helps bond that relationship.  Certainly not the case in every relationship, but being able to look back at what both of you accomplished together, is a good reason to remain together.

 

Whatever the reason, the trend needs to be reversed.  Our country’s population growth is now below replacement.  That means we are having less kids today than the number of Americans dying.

 

I hope this makes you stop and think.  It did for me.

 

 

 

 

And now the week’s economic news…….

 

Inflation Rises

Investors were focused on major inflation data this week. While the more significant CPI report matched expectations on Tuesday, the PPI inflation data on Thursday was much stronger than expected. The impact of the PPI report was minor, however, and mortgage rates ended the week nearly unchanged.

 

The Consumer Price Index (CPI) is one of the most closely watched inflation indicators released each month. Since it excludes food and energy prices, which are prone to short-term volatility, investors tend to focus on core CPI to get a clearer sense of the long-term inflation trend. In July, Core CPI rose 0.3% from June, matching the consensus forecast. It was 3.1% higher than a year ago, up from 2.9% last month and the highest annual rate since February.

 

Another significant inflation indicator released this week, which measures costs for producers, came in far above the expected levels. The July core Producer Price Index (PPI) jumped a shocking 0.9% from June, while the consensus forecast called for an increase of just 0.3%. This was the largest monthly increase since June 2022. Core PPI was 3.7% higher than a year ago, up from an annual rate of 2.6% last month and the highest level since March. Both CPI and PPI remain well above the 2.0% target level of the Fed. Of the two major inflation reports, investors tend to place less weight on PPI, since it reflects a smaller slice of the economy than CPI. Going forward, investors will be watching closely to see if higher tariffs continue to exert upward pressure on inflation levels. Following the latest inflation data, investors now anticipate that the Fed will reduce the federal funds rate by 25 basis points at the next meeting in September and by another 25 basis points before the end of the year.

 

Consumer spending accounts for over two-thirds of U.S. economic activity, so investors pay close attention to the monthly Retail Sales report as a key measure of the health of the economy. Retail sales in July rose 0.5% from June, matching the consensus forecast, and they were a solid 3.9% higher than a year ago. Particular strength was seen in motor vehicles, home furnishings, and apparel. While some investors have been concerned that consumers may scale back their spending due to economic uncertainty, it has not taken place so far this year.

 

 

 

 

Next Week

Looking ahead, investors will continue to watch for additional information about tariffs and monitor comments from Fed officials for hints about monetary policy later in the year. It will be a very light week for economic reports with a focus on the housing sector. Housing Starts will be released Tuesday, and Existing Home Sales will come out Thursday.

 

 

 

Until next week….

 

*** Please note that Freddie Mac publishes their weekly rate report on Wednesday mornings from data received Monday and Tuesday. 

The graph above is intended to shown rate trends, and not “today’s current rate”. ***

 

 

Reviews From Our Past Clients

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Google Link:

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Our Rate Quote System is Available to You

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Here’s the link:      https://www.hawaiimortgage.net/todays-rates/

 

 

Do you think all lenders are the same?

There is a difference when you use Hawaii Mortgage Company for your financing.  Here’s a short video telling you why:

 

https://youtu.be/c7AKQ5wa2_U

 

 

 

Broker vs. Banker?

Click the link below to get a quick lesson on why working with a Mortgage Broker will benefit you on your next transaction.

 

https://youtu.be/iH3igW5v2jE