Mortgage Rates

Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates.

• Mortgage rates were heading higher in the past month but the increases should stop this week, even if temporarily.  This is due to the decline in the borrowing rate for the U.S. government, which then directly impacts the mortgage borrowing rate.
• The 10-year Treasury borrowing rate fell to 2.2 percent this morning, after having reached 2.4 percent late last week.
• Under normal financial market conditions, the 2.2 percent Treasury borrowing cost would imply a 3.8 to 4.0 percent mortgage rate on a 30-year fixed rate, based on the normal 160 to 180 basis points spread.  However, because we are in an abnormal market, the average mortgage rate will get quoted at 4.1 or 4.2 percent, while the quotes on jumbo mortgages will be closer to 5 percent.
• Even though there appears to be a respite in mortgage rates this week compared to the recent past, the overall pressures from the high budget deficit and rising inflation will be towards higher mortgage rates in later months.  Expect mortgage rates to average something closer to a 4.5 percent rate by spring of next year and possibly hit 5.0 percent one year from now.  A lower mortgage rate in later months is not likely.