Thu, May 28, 2009
It Looks Like It’s Time to Refinance
A couple of items at the Calculated Risk blog caught my eye today; both suggest that mortgage rates might well be headed higher.
First, Calculated Risk noted that since the yields on 10-year Treasuries have been moving up, there’s a good likelihood that mortgage rates will also be increasing. There’s normally a close relationship between the direction of 10-year Treasury rates and 30-year mortgage rates, but in recent months, Treasury yields have increased more than 1% while mortgage rates actually slipped a bit. It’s unlikely that this trend will continue.
Later, the blog also commented that the difference between 2-year and 10-year Treasury rates is unusually large – at record levels. Growing unease with the increase in Treasury borrowing is apparently driving down the price bond buyers are willing to pay, so longer-term interest rates move higher. Rising Treasury rates should impact the yields on mortgage bonds, translating into higher mortgage rates at the retail level.
Although economist Mark Zandi opined at the NEEP meeting last week that mortgage rates might continue to decline, they are already near historic lows. Barring a major change in the debt market’s attitude, mortgage rates will have a hard time going lower. It’s impossible to say for certain that rates can’t go lower, though – catching mortgage rates just as they reach their lows is extremely hard to do in practice. People who do manage to do it are exceptionally fortunate rather than exceptionally clever.