On Sept. 17, when the Feds lowered the benchmark rate, I thought, about time. Although the ¼ point reduction wasn’t enough to bring buyers out of the closet, it was the Feds’ promise of two more rate reductions before the end of the year that for a fleeting moment put a smile on my face, but maybe a bit too soon.
Borrowers who have been waiting for relief from high rates might have to keep waiting. Just to be clear, mortgage rates aren’t set by the Fed, so unfortunately, don’t bet on any major drops soon. For a brief moment in time, the average rate on a standard, 30-year, fixed-rate mortgage drifted down to 6.26%. This was the lowest level in nearly a year, then a week later edged back up to 6.3%. Now we’re hearing that it’s not expected to change much going forward.
The Mortgage Bankers Association recently estimated that mortgage rates would actually increase to 6.5% by the end of the year – what? Why is this happening? While anxious homebuyers are watching the Fed, what they should be watching is the bond market and treasuries in particular.
The big boys on Wall Street are watching the long-term bond yields, which have been drifting lower for several reasons. Among them is the expectation that the Fed will soon start cutting interest rates but also raise the risks of a recession. One big reason that home loan rates have been high in recent years is that banks have been buying fewer mortgage bonds. I don’t know about you, but my head just exploded.
Meanwhile the average homebuyer just wants to get their life moving again. This is what you get when half the country refinances to a 2-3% mortgage – housing gridlock.
There’s an interesting story I read in early September about the danger of having an ultra-low-rate mortgage, so here goes: Once upon a time, there lived a nice young couple with two adorable little girls close to the beach in Florida. Even though their life seemed like a fairy tale, it wasn’t, and they decided to divorce. Sad as this was, their story became sadder still when they realized they couldn’t sell their home and afford to live separately near their children. And this is where it got complicated.
This couple, like many others in the country, took advantage of rock bottom mortgage rates in 2020 at roughly 2%. This was, of course, a good financial plan at the time, however, now that they are divorced, they are experiencing the “lock-in effect.” Basically, homeowners staying in place and not moving because they don’t want to give up their low interest mortgage creates a complicated lifestyle for the couples and the children. This couple has decided to both live on the same property, he in what they call the “beach bungalow” and she in a 19-foot Airstream trailer in their yard. Both have access to both properties, and the children are traded back and forth. And other ex-spouses are also finding a way to keep their mortgage by leaving the kids living in the house with the parents rotating in and out.
With the interest rates still high and the shortage of homes pushing prices up, it looks like couples like these will have this fractured living arrangement for a while. It’s a sad state of affairs when the only reason you talk to your ex-spouse is because you have a 2% mortgage. How on Earth did we get here?
