Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
As of this writing, the yield on the 10-year US treasury was just shy of.70%. We are at historical lows on the index, but a sudden spike of almost 20bps is causing a lot of concern in the interest rate markets. If I told you a year ago that the 10yr would be under 1%, you would have laughed. Although, if you go back to many of my articles, I was in the minority when I kept predicting that the yield would drop beneath 1% and that it would test lows, but no one predicted such lows. That said, a.70% number is at an almost two-month high and has followed a rising yield for several days, which might start weighing on mortgage rates.
In a few short trading days, we have seen yield break above the 25, 50, and 100-day moving averages. Is this a signal of rising interest rates? Historically, the 10-yr was an excellent gauge for mortgage bonds and the pricing of mortgage-backed securities. They are still closely related and more often go in tandem than in opposite directions. We certainly see many new unique characteristics in the marketplace that are testing traditional fundamentals. The recent bond auctions have seen spiked activities, where direct and indirect bidders took about 80% of the Auction, matching the most since April 2019.
This week we saw a lot of news that might have contributed to the sudden spike in treasury yields. For starters, Russian President Vladimir Putin claims they have developed the world’s first approved vaccine against SARS-2Cov-2, the coronavirus that causes Covid-19. While the stock market seems to be putting a lot of faith in the legitimacy of a vaccine, many are skeptical. I won’t get into the politics of the matter. Stocks have continued their record-breaking altitudes and continue to soar higher on the optimism of finally being able to rid the world of this pandemic. I’m not optimistic.
In actual market news, the Consumer Price Index (CPI), which measures inflation on the consumer level, came in at 0.6% for July. The year over year reading increased from 0.6% to 1.0%. Gasoline rose 2.5% last month, which was a big reason for the gain in the headline. However, we are still down 11% year over year, weighing on our collective figures. This is an essential indicator as inflation is not favorable for bonds, and would cause rates to inch higher.
In mortgage news, the Mortgage Bankers Association released its Mortgage Application data for last week. The numbers showed that overall application volume rose by 6.8% from the previous week. Purchase loans were up 2%, and on a year over year basis is 22% higher. In parts of the Northeast, we see a more substantial number, especially in Bergen, Hudson, Ocean, Rockland, and Westchester counties. Refinances increased by 9.0% last week and are up 47% year over year. While this is still strong, we are seeing a significant decline in the year over year compassion, as just a few weeks ago, refinances we up over 100% compared to last year.
This week’s mortgage rate report, which is backward-looking, showed that interest rates decreased from 3.14% to 3.06% nationally. I am sure that by the time people are reading this article, headlines will be talking about how mortgage rates increased for the first time in a few weeks. I believe that the most significant factor that contributed to the sudden quick spike in treasuries, and continued surge in the stock market, was presidential candidate Joe Bidens announcement that Kamala Harris will be his running mate. Interest rates are always very volatile during an election year, and this year will undoubtedly be even more so, with the global pandemic at the forefront.
My recommendation is to continue to seek guidance from a true professional and market expert who can help you navigate with your specific mortgage scenario. While it might not be considered a lot of money, a 25bps increase in rate can cost a homeowner over twenty thousand dollars over the life of their loan, and almost $70 more per month (assuming a $500,000 loan balance). Each situation is unique and should get the personal advice and attention that it needs.
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