Long-term impact remains the $1.25 trillion question
By Inman News, Thursday, March 19, 2009.
Inman News
Rates on 30-year fixed-rate mortgages dropped below 5 percent this week, according to a survey of lenders taken before Wednesday’s announcement that the Federal Reserve plans to buy up to $1.25 trillion in mortgage-backed securities this year.
At 4.98 percent with an average of 0.7 point, the 30-year fixed-rate mortgage (FRM) has not been lower since Jan. 15, when it hit an all-time low of 4.96 percent, Freddie Mac said in releasing the results of its Primary Mortgage Market Survey. At this time last year, the 30-year FRM averaged 5.87 percent.
Although the Fed’s announcement was widely expected to bring mortgage rates down further, it’s unclear if lenders will pass all of the savings they could achieve through lower borrowing costs to consumers, or if long-term rates will rebound if inflation sets in.
The best wholesale rate available to mortgage brokers on 30-year fixed-rate loans fell from 4.811 percent Wednesday to 4.502 percent today, according to data compiled by Jack Guttentag (“The Mortgage Professor”) at mtgprofessor.com. Although consumers cannot borrow at wholesale rates, the dramatic overnight decline demonstrates the impact of the Fed’s announcement.
In addition to upping by $750 billion a previous commitment to buy $500 billion in mortgage-backed securities, the Fed said it would buy up to $300 billion in long-term Treasurys (see story).
Yields on 10-year Treasury notes, which are viewed as a comparable investment to mortgage-backed securities, fell by half a percentage point after the announcement — the largest one-day decline since Oct. 20, 1987, said Freddie Mac chief economist Frank Nothaft.
Even before the Fed’s announcement, long-term mortgages had followed bond yields lower for the second week as reports of slower industrial production suggested that business spending might ease this year, Nothaft said.
However, some observers worry that the massive expansion of the Fed’s balance sheet — akin to the government “printing” money — could eventually trigger inflation, which could lead to higher interest rates.
In afternoon trading today, yields on 10-year Treasurys were climbing above yesterday’s close of 2.53 percent, according to Yahoo! Finance. Freddie Mac said the 15-year FRM averaged 4.61 percent with an average 0.7 point for the week ending March 19, down from 4.64 percent last week and 5.27 percent a year ago. The 15-year FRM has not been lower since the week ending June 13, 2003, when it averaged 4.6 percent.
Five-year Treasury-indexed hybrid adjustable-rate mortgages (ARMs) averaged 4.98 percent this week, with an average 0.7 point, down from 4.99 percent last week and 5.56 percent a year ago.
One-year Treasury-indexed ARMs averaged 4.91 percent this week with an average 0.7 point, up from 4.8 percent last week but down from 5.15 percent a year ago.