Treasury and mortgage prices are higher this morning extending yesterday’s rally. Investors are preparing for the week’s data which has portrayed a bleak picture of the economy, stirring fears of a double-dip.
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I find the above post confusing. Typically, when treasury prices are higher, particularly the benchmark 10 year note, longer term fixed mortgage rates (most notably the traditional 30 and 15 year products) decline. As treasury prices move up, the rates goes down since rates move inversely with treasury pricing. The continuation of the rally referred to in the post above, as a reflection of higher treasury prices, would actually tend to reduce mortgage pricing, not raise it. And that’s exactly what happened (yet again) today. Posted mortgage rates dropped further, generally with respect to the degree to which either a) credits are paid back to the borrower upon closing, or b) points are paid by the borrower to obtain a better rate.
For example, today’s 15 year fixed rates for the most qualified borrowers can vary between perhaps 3.5% and 4.0%. One variable is whether one pays extra to “buy down” a better rate (3.5%-3.625%) or is granted a credit towards closing costs (3.75%-4%). As 10 year treasury note prices moved up today, compared to yesterday’s rates, more credits may be paid back to a borrower selecting a 3.875% rate. Likewise, if a borrower secured a 3.625% rate yesterday for a premium paid of perhaps 1 point (1% of the borrowed amount), today’s borrower may need to pay only 0.75 point as a premium to secure the same rate.
Conversely, if tomorrow’s treasury activity is weaker and bond prices decline, yields will increase and consequently, mortgage products would likely adjust upward. Other factors come into play and vary from lender to lender depending on multiple variables, but in a general sense the treasury (T) note activities influence mortgage pricing. What’s so frustrating to the average consumer is that it’s a moving target that can change a few times each day. Local lenders such as community banks and credit unions may charge somewhat more but not change their rate structures daily unless significant market movement occurs. Those that retain the properties they provide financing for (as opposed to re-selling the mortgages they initiate) may not be willing to go below a house “floor” that they feel comfortable with, regardless of market conditions. Each such lender will develop its own house policy in that regard.
Thank you, Lee. Your insightful analysis is appreciated.