Mortgage Rates Slide, But Pressure is Building

To read the news, you would think mortgage rates had suddenly fallen through the floor.   While the slide has been steady in recent weeks, owing to the Fed’s fat wallet and their promise to shill at the Treasury auctions, the decline is clearly not as dramatic as portrayed by the headline-hungry media.

Here’s what I mean.  These are the weekly national averages for 30 year fixed rates taken from Freddie Mac’s weekly Primary Mortgage Market Survey published each Thursday.

• March 26:  4.85%
• March 19:  4.98%
• March 12:  5.03%
• March 05:  5.15%
• February 26:  5.07%
• February 19:  5.04%
• February 12:  5.16%
• February 05:  5.25%
• January 29:  5.10%
• January 22:  5.12%
• January 15:  4.96%
• January 08:  5.01%

Hmmm….not so much.   Year to date, rates have fallen just 16 basis points, less than two tenths of one percent!  Not exactly the plunge describe in our own Sacramento Bee last week.

The details are common casualties of the hype, but remember, that’s where the devil lives.   For example, banks are not pricing the old “zero points” loans favorably these days.  Home owners  accustomed to eliminating points with a small increase in interest rate find that today the rate offered is 5.5% or higher.

If you are pulling cash out or your credit scores have fallen below 740, you’ll pay a higher rate as well.    Those buying duplexes and condos also pay higher rates.   And if you’re are an investor, rates and fees look nothing at all like the advertised rates.   These risk-base price adjustments have been implemented by Fannie Mae and Freddie Mac this year in reponse to the high mortgage default rates, and the effectively mean that only a narrow cross section of today’s borrowers have access to those really low rates.

And don’t pay attention to the rumors that the government is going to somehow push rates down to 4% or lower–I hear that one a lot lately–because it just isn’t going to happen.  The only reason rates aren’t rising already is that  a) the economy is deflating rather than inflating, and  b) the Fed is standing by to buy MBS and Treasury securities to keep rates in check.