People who are thinking about getting a mortgage to buy or refinance a home are having shell shock relating to the costs associated with doing a mortgage transaction. It’s not as simple as inflation to why mortgage rates are so high. Here’s some information that explains not only why mortgage rates are so high, but the opportunities in today’s present market and what the future holds…
The key reason 30-year mortgages are at 7% is there’s a shortage of buyers. The more buyers of mortgage back securities the lower mortgage rates become. The shortage of mortgage-back securities came from the Fed backing out of buying mortgage backed bonds. Along with other mortgage back securities’ buyers backing out because of pre-payment risk. Compounding the problem is the Bank of England, the UK economic threat, the fall of the Japanese yen, and the risks of a nuclear conflict between Russia and Ukraine. These concerns are causing the market to dump US currencies including treasuries and mortgage-back securities to raise cash for these nations. This only adds to the supply and demand imbalance. The reason this is problematic is it creates an economic market atmosphere that these mortgages being originated today long term will be refinanced. This phenomenon that’s taking place has produced an inverted yield curve which is an indicator that in the long-term rates will come down. Put anthoer way, the prepayments on these mortgages being originated today will come to fruition.
Its estimated interest rates could be in the low fives at the end of the fourth quarter of 2023. This would then produce a mini refinance boom of all the mortgages being originated today. The investors on Wall Street know this, and that’s why the mortgages today have discount points associated with most interest rates as the pre-payment risk is a very real concern. This means the loan not coming to maturity. The loan is quickly paid off creating investment risk for the end mortgage buyer.
What does that mean to you as a consumer? It means buying a home today and negotiating the home substantially. That is the opportunity this market brings. Know this- when rates do ultimately fall, competition will re-emerge and the bidding wars will return driving the demand for real estate.
If you’re thinking about purchasing a home or want to learn more about what it might take to get prequalified to purchase a home start with a no-cost loan quote today!