This week 30 year mortgage rates rose over half a point. This is the largest one week increase this year. It's interesting that the rate increases happened after the bailout was passed by the government. Although this is not a sign the bailout will fail its not a positive sign of its future effectiveness. The primary purpose of the bailout was to influence banks to lend. And "hopefully" taking away billions of bad loans would cause banks to ease restrictions and lower rates. Instead we are seeing a dramatic rise in rates. In essence the banks are saying thanks for the money but it's not going to cause us to lend. How much have rates risen? Besides a period at the end of July and the beginning of August 30 year mortgage rates are the highest they have been all year. Below are rates for the last few weeks.
October 16, 2008
30-yr 6.46 15-yr 6.14 5-yr ARM 6.14 1-yr ARM 5.16
October 9, 2008
30-yr 5.94 15-yr 5.63 5-yr ARM 5.90 1-yr ARM 5.15
October 2, 2008
30-yr 6.10 15-yr 5.78 5-yr ARM 6.00 1-yr ARM 5.12
September 25, 2008
30-yr 6.09 15-yr 5.77 5-yr ARM 6.02 1-yr ARM 5.16
The thing that jumps out here is that Arm rates jumped up less than rates on fixed mortgages. In fact 1 year arms hardly moved at all this week. This is probably because fixed rate mortgages have fallen more over the last 2 months. In contrast, 1 year arms have kept pretty steady the last few weeks.
Ok let's look at what these rates mean for an actual mortgage payment. Looking at a 200k loan lets see what current mortgage rates translate into for a mortgage payment. In addition to today's rates we also looked at rates from last week and last month.
5-yr ARM $1217.16
1-yr ARM $1093.28
5-yr ARM $1647.99
1-yr ARM $1092.05
5-yr ARM $1201.67
1-yr ARM $1093.28
So as we can see the rate increases this week are anything but trivial. For a 200k mortgage the mortgage payment increased $67.48 which translates into a 5.7% increase. So what is going to happen in the next two weeks? Last week we said we didn't know if rates were going to go up or down but we felt mortgage interest rates would probably be volatile given the current market. That's what we saw this week and we continue to see a pretty volatile market. Additionally, I think the chance that rates will go down this week is greater than the chance they will go up. Basically, after a large move up or down rates tend to have a slight correction the next week. The other bit of news is that the government is having a 7,500 tax credit for first time home buyers. So hopefully that will to some degree offset the negative impact of higher interest rates. The real question is what is going to happen over the next few months. The hope is that the bailout will eventually lower mortgage rates. But the initial reaction (the largest jump all year) is anything but positive.