(Here’s what my lender, Jimmy Kinley, says about the spike in home loan interest rates- Dennis)
Denver mortgage interest rates rose 5/8% in just the previous 14 days. At that rate, interest rates for 30 year fixed, conventional mortgages could reach 4% soon. But, that’s not my prediction. Instead, here’s my thinking.
Let’s start with the basics. If you do not understand this part, you will not understand any of the “why”. The Federal Reserve Board does not control mortgage rates. Yes, you have been lied to by the media forever. And, they will continue to get it wrong. You will continue to hear that the FED is going to keep rates low. Because, the media will continue to apply that to mortgage rates.
The FED funds rate and Prime rate have nothing to do with mortgage rates. So, I will say again, the FED rates do not control mortgage rates. Soap box completed😊
Who Sets Denver Mortgage Interest Rates?
OK, so what does control mortgage rates. The MBS (mortgage backs securities) indexes directly drive mortgage rates. When investors invest in MBS securities though market auctions that cause these indexes to go up. When the indexes go up, rates go down. When there is a sell off in MBS’s, those indexes take a dive. As a result, rates spike up.
That wording was by design. Think of the way you invest. You do the research, think about it, then you invest. That sounds right. Now, think of how you sell your investments. Do you do your homework, think about it, then sell? Or do you see that money you made quickly going away and you jump on the band wagon to sell before you lose anymore.
Most investors will invest methodically and sell with some emotion. Therefore, you see indexes like Apple stock or Tesla stock go up slowly and then they go down more quickly quickly. The same thing applies in the MBS world. That is why rates will trickle down slowly for months and months and then lose a half of a percent in a few days when they go back up.
Inflation Drives Up Mortgage Interest Rates
What is driving this rate spike? It’s Inflation. Inflation is the absolute arch enemy of mortgage rates. The villain. When inflation fears are on the rise, investors of MBS’s start to sell. For example, our government is talking about a one to 2 trillion-dollar relief package. Let’s put that into numbers. 1,900,000,000,000.00. You simply cannot even talk about spending money like this without creating huge inflation fears.
Why is inflation such a big deal? Because, inflation with regards to money means a general increase in prices. So, the purchasing power of money falls. Now, lets imagine you are an investor who has a bunch of money invested. If the value of the dollar falls and your investments do not go up, you still lose money. Most Mortgage Back Security investors are not like you and me. Instead, these are huge institutional investors who do not mess around. At the first hint of inflation, they start to sell. Once they start to sell, the emotion comes into play and more start to sell. As a result, we are steam rolling downhill.
This is what has happened in the past week. You will start hearing about this in the next couple weeks because the media is always a week or two behind the real time rates. Because, that’s how much the reporting lags the market. It creates a lag time.
Home Loans Rates Headed Up, Down or Sideways?
What does the future hold? Who knows? I can’t say I believe we are going back to 4% rates just yet. Do I think we will get back to a 2.625% 30yearr mortgage rate with no points. I doubt it. My gut says this is a spike and we will likely make some of it back for a short while. Assuming, we do rein in the government spending a bit.
I think we still have some economic challenges on the horizon that may give us one more peek at the edge of interest rate percentages in the high 2’s or very low 3’s. Still, you have to pounce on short-term drops. The outlook is volatile. So, expect those ups and downs. I know we like to think that these low rates are supposed to be normal. But, they are not.
Don’t forget the average for a 30year fixed mortgage since recorded 50 years ago is almost 8%. That right, we have been spoiled for a while by these low Denver interest rates. My advice, if you are ever going to buy that first or bigger house you should do it sooner than later. Yes, I know that there is no inventory. That also will not change until people start listing their homes. When others see more inventory, they too will list.
Sellers Real Estate Market
The builders are years behind at this point so its up to us to takes the first step. If you are the seller, you can be in the power position. That means you can sell your house and make the buyers give you a 60 day rent back to find another home and close. There are many creative ways to “flip the script” in these crazy times. You just need to get a great Denver REALTOR and make it happen. Thanks for taking the time to read this on All Denver Real Estate and trusting me with your mortgage business!
(This was written to me by my lender Jimmy Kinley. He is a loan originator with Cherry Creek Mortgage, NMLS# 287498. Give him a call for a quote at (720) 261-1410 on the latest interest rates. – Dennis Martin)
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