The 30-year fixed-rate mortgage landed at:
The 15-year fixed-rate mortgage settled at:
The 5/1 adjustable-rate mortgage ended at:
It's not uncommon to see inconsistencies between Freddie Mac's and Bankrate's data, but there's another disagreement in trends associated with this week's mortgage rates. Freddie Mac's Chief Economist Sean Becketti pointed out that, contrary to the norm, mortgage rates changed in the opposite direction of the 10-year Treasury yield.
When a consumer obtains a conventional mortgage, the loan will usually get securitized and sold to investors, explained the San Francisco Chronicle. This sales process removes the mortgages from lenders' books and gives the creditor the funds needed to continue to offer more loans.
The mortgages are sold to investors in bundles of similar loans called mortgage-backed securities. These securities are considered high-risk, which means they also come with a higher rate to compensate for the risk. (If an investor is willing to take a big risk, that person generally wants a higher payout, The Balance explained.)
Investors need to choose where they feel safest putting their money. If the market looks more uncertain, they'll turn to Treasury bonds, which are considered safer than mortgage-backed securities. This means that, generally speaking, investors will usually choose either Treasury bonds or securities.
This brings us to the Treasury yield. The yield refers to the price that a Treasury bond was sold at compared to how much the investor will get back, or that person or entity's return on investment.
When demand is high, bonds are sold above face value, which lowers the Treasury yield, The Balance explained. If there's not a lot of demand for bonds, they will be sold below face value. The investor likes this situation - the cost is lower, but the return is pretty much the same. This increased gap between face value and selling price increases the investor's return on investment, or Treasury yield.
If there's not a big demand for bonds, it usually means investors who normally would be pursuing these purchases are putting their money elsewhere - like mortgage-backed securities. And, as stated, these investors want the risk they're taking with the securities to be reflected in the form of higher returns. Bigger payouts come from increasing mortgage rates.
Though the relationship between Treasury bonds and mortgage rates is a confusing one, it's a connection that investors - and prospective homebuyers - tend to carefully watch because it can clue them in on upcoming changes in the market. For example, falling Treasury yields could indicate an ideal time to refinance a mortgage for a lower rate.
However, as Becketti noted, the tie between bonds and rates isn't an exact science, and sometimes it deviates from what's generally regarded as normal market behavior.
"For the last 46 years, the 30-year mortgage rate has been almost perfectly correlated with the yield on the 10-year Treasury, but not this year," Becketti said in Freddie Mac's weekly mortgage rate update. "While we expect mortgage rates to fall into line with Treasury yields shortly, this just may be a year full of surprises."
For now, rates seem to be trending down, even though yields are looking up. This creates the perfect situation for homebuyers to make a move on a mortgage or for homeowners to look into refinancing. But it's best to explore these options quickly - rates could align with yields sooner rather than later.
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