Mortgage Video & Blogging Community

In Palm Beach and Martin County Florida last week, most mortgage rate surveys would have you believe that mortgage rates this week should be lower than last.

According to both widely tracked indexes by Freddie Mac and Bankrate.com, interest rates declined anywhere from 1 to 6 basis points. For most people seeking a mortgage, this would probably not result in a meaningful change as mortgage rates are quoted in .125% increments or changes of 12.5 basis points.

In reality, any consumer shopping for a mortgage on Friday of this week as compared to last, would have found that rates were actually .125-.250% higher on a loan with no points and no fees. Or, stated another way, in order to receive the same rate in effect last week, someone would have to pay approximately .50-1.00% in points or fees.

Volatility Resumes to Daily Mortgage Rates

Interest rates from mid-January through late May both started and ended at approximately the same rate. However, during that time, the range of rates from high to low was separated by approximately 0.500%.  During that time frame, on a weekly basis, interest typically did not change by more than approximately .125%.

From the end of May however, weekly interest rates changes have been capped at approximately .375% at street level for most consumers. This represents an increase in rate volaltility of nearly 300%. It has not been uncommon to see available interest rates change multiple times in a day. This week was no different.

What is Driving Rate Changes?

While mortgage rates represent a potential change to monthly payments for the average consumer, for investors, a change in interest rates represents a change in potential future income and can impact the value of principal invested. For anyone that purchases a fixed income investment, the amount of the future income stream is fixed, however as interest rates rise and fall, so does the value of the amount invested.

Mortgage Backed Securities are bought and sold on the secondary markets, much in the same way that stocks are. As investment capital is limited, money typically flows from one investment to another or from stocks into bonds or cash. As the laws of supply and demand prevail, when the value of one investment class falls like bonds, stocks may be the beneficiary seeing an increase in value as people sell one asset class and purchase another.

Palm Beach and Martin County Florida Mortgage Rates

In the chart above, you can see where the direction of interest rates trends in the same way as the direction of the Standard & Poors 500 index from July 1 – July 17. The two lines, pink and green as seen above, represent the opening number of the S&P 500 (pink) and 30 Year Fixed approximate interest rates before risk based pricing with no points and no additional fees for conforming loan amounts above $150,000.

As can be seen in the chart, mortgage rates trend both in rising and falling with the direction of the stock market. When the S&P 500 index moves higher, so do interest rates. When the S&P index trades lower, mortgage rates typically tend to fall as the index falls.

Last week was one of those weeks where stock market had a solid week in anticipation that the economy is starting to show signs of recovery. In a market that has been constrained for some time, depending on who you speak with, many people believe that the economy will turn the corner after the first of the year. Should this occur, the stock market should improve and mortgage rates could rise in the process.

Not All Programs Offer Similar Interest Rates

One point to remember in reviewing the chart above is that different loan programs offer different interest rates as the mortgage backed securities traded for Fannie Mae, Freddie Mac, FHA, USDA Rural Home Loans and loans offered by the VA, trade at different levels and thus offer different mortgage rates.

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Jim Sahnger
V.P.Palm Beach Financial Network
(561) 626-7813
jsahnger(at)pbfn.com

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