Two percent loans? Rising rate fears take abrupt turnaround

The industry has been concerned about higher mortgage rates in 2016, but so far, rates have been low.

And, they may even head into record-low territory soon, according to analysts.
About two months ago, the Federal Reserve raised its funds rate for the first time in years. Since then, however, the 30-year fixed-rate mortgage has been dropping.

“Mortgage rates are going down again, and it’s good for borrowers, but is it really good for the housing market and the broader economy? The answer is no,” said Guy Cecala, CEO and publisher of Inside Mortgage Finance.

Some analysts say rates could even fall into the 2 percent range. “It would help those on the low end but could hurt jumbo loan borrowers,” CNBC reported. “Banks, which generally hold these larger loans on their books, would not want to lend in that environment.” Banks would retreat back to where conforming government mortgages would be cheaper than private jumbo loans, Cecala said.

What’s behind the drop in rates? Investors are flooding into the U.S. bond market, which is leading to the drop in mortgage rates, CNBC reported. Mortgage rates follow loosely the 10-year Treasury bond yields.

“Investors are buying bonds as a safety play in a highly volatile and largely negative stock market,” CNBC reported. “Signs of weakness in the U.S. economy, in addition to trouble in overseas markets, pushed the yield on the 10-year Treasury to its lowest level since 2012, and mortgage rates followed south.”

The lower mortgage rates do help homebuyers lessen their monthly payments and also to qualify for larger loans – which could help provide a boost to the spring home-buying market. But a weaker economy, on the other hand, mixed with stock market losses and sluggish wage growth can also hurt the housing market.