Mortgage Rates Are Acting Like Mexican Jumping Beans

By Author: Andres Leiser
Total Articles: 34
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Movement of housing mortgage rates are resembling a roller coaster ride as changes are both fast and dramatic. Week old mortgage rate reports are completely outdated.

The average rate on the 30-year fixed conforming loan attained its highest level in two years a week ago. This had a big effect on consumers who are shopping for mortgages. Refinance applications fell 16 percent and home purchase applications dropped 3 percent week-to-week.

This all comes one day after a report showed mortgage rates moving off their highs, but not by much. Last week mortgage rates came down from a 23-month high as the Fed wanted to reassure real estate markets that the wind-down of the stimulus program would be gradual, and contingent upon strong improvement in economic fundamentals.

The focus this coming week will be on Friday's jobs report. This will serve as an indicator of whether the economic recovery is strong enough to hold up if there is an earlier-than-expected withdrawal of Fed stimulus.

What does it mean, to those looking to buy luxury real estate in Miami, that mortgage rates are up about a full percentage ...
... point from where they were at the beginning of May? It means about a 15 percent jump in monthly payments for the average luxury real estate home buyer in Miami and other places. In other words, it means 15 percent less purchasing power for those who would like to buy luxury real estate in Miami. These percentages can absolutely be make or break for some Miami luxury home buyers, especially for those who were reaching to begin with.

It has been shown that home purchase applications have continued to move sideways over the last month and not fallen. This may be people in Miami that are rushing to buy or lock in mortgage rates before rates move even higher though. Rates are still historically low, and we are in the middle of a gradual improving economy, although a gradual one. The rise in mortgage rates should not do much to derail the Miami luxury real estate housing recovery.

The most recent rate retreat gave back around 15 points, but buyers of luxury real estate in Miami really can't do anything with these small moves. They are largely dependent on investors buying or selling Treasury bonds.

The 10-year Treasury yields have come down slightly in the last few days, but it is not expected that the bulk of the increase in mortgage rates to be reversed. It is looking like 4.5 percent by the end of the year, 5 percent the next year and 5.5 percent the year after that in 2015.

Mortgage rates depend on Treasury yields to some extent, but more recently, they have had more to do with fees imposed by Fannie Mae, Freddie Mac and the FHA. Those three buy or back about 90 percent of today's mortgage originations. They could also be affected by new regulations that will hit lenders next year that will increase their costs. Suffice it to say that the lenders may pass those costs on to borrowers.

Rates are in a new, higher range right now, but if the real estate market still 'works' as it should, the weakening luxury housing real estate and mortgage markets caused by the higher rates should allow rates to go back down near the year at the latest. People should be able to purchase their luxury Miami real estate when that happens.

Author's Bio

Andres Leiser is a local contributor for Constec Realty's Miami luxury real estate website. Andres Leiser has been involved in Miami real estate for over a decade. For more information please visit http://www.constecrealty.com