Why Mortgage Rates Haven't Fallen in Lockstep With Interest Rates
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What is the main topic discussed in this episode?
Here's your money briefing. I'm J.R. Whelan at The Wall Street Journal in New York. The Federal Reserve has been dropping interest rates, but mortgage rates have not been moving in lockstep. We'll find out why in a moment. First, some money in market news you should know. Social Security recipients will see an additional $24 in their monthly checks next year. That's a 1.6% increase.
Why haven't mortgage rates fallen as much as Fed interest rates?
But for many seniors, about a third of that will go toward a roughly $9 monthly jump. and Medicare Part B expenses. Those cover doctors, visits, and other types of outpatient care. A steep drop in income can not only affect your wallet, but your heart as well. A study of 9,000 people found a correlation between an income drop of more than 50% and higher risk of cardiovascular disease. The study published in the Journal of the American Medical Association revealed that those who had suffered an income drop between the late 1980s in the mid-1990s were much more likely to suffer heart problems over the next two decades. That included strokes and fatal heart attacks. The study also found a more than 50% income rise was associated with a lower risk of cardiovascular disease.
Mortgage rates usually fall as interest rates fall, but even though the Federal Reserve lowered interest rates in July and is expected to lower them again by December, mortgage rates have not followed them lower. Wall Street Journal reporter Ben Eisen is here to explain what's keeping mortgage rates from falling. So Ben, the average 30-year fixed rate for a mortgage for this week, the week of October 4th, it's about 3.5%.
How do 10-year Treasury yields relate to 30-year mortgage rates?
Is it common for mortgage rates not to move in lockstep with interest rates?
Well, what you see generally is that the 30-year fixed rate mortgage tends to track most closely the 10-year treasury yield. And the 10-year treasury yield has been falling a lot over the last few months, in part because of the Federal Reserve's decision to lower interest rates and sort of the economic factors around it. And as a result, you'd expect that the 30-year fixed rate mortgage would the rate on that would fall just as much. And while it has fallen, it just really hasn't fallen nearly as much at all. So it's kind of barely budged, even though you've seen sort of the benchmarked tracks go down a lot.
But traditionally, when we've seen interest rate reductions the way that we have seen, mortgage rates typically do fall at a more precipitous rate than we're seeing now?
It sort of depends on the time period, and it depends really on how much lenders are sort of going after business. If they're sort of really aggressively pursuing business, they will often lower rates in lockstep as aggressively as they can to try to attract borrowers. But what you're seeing here is a little bit different because lenders, if anything, are sort of overwhelmed with demand. Rates have fallen enough that it's bringing in all of these folks who want to refinance their loans, but lenders really haven't kind of scaled up their businesses. They cut back a lot last year and haven't really... hired a tremendous number of people. And because of that, they're sort of overwhelmed by demand. So when you look at kind of the economics of the business, what they're doing is they're kind of keeping rates a little bit higher to manage that demand, which might mean like doing less loans, but at the same time, they're earning more per loan because of the higher rate.
And they're seeing a stronger demand in mortgages and refinancings currently?
Yeah, it's definitely been up a lot this year. I mean, it's important to note that mortgage rates have fallen a lot more slowly than treasury yields, but they have fallen. And that's been a boon to folks who might have bought a home last year when rates were near 5%, and now they're less than 4%.
Why are lenders keeping mortgage rates higher despite lower benchmarks?
So people still want to refinance, and they're kind of lining up to do so. But they just might not get quite as low of a rate as they might expect going in.
But is there a perception problem here? You know, borrowers hear all this talk about lower interest rates, and then they see mortgage rates not budging, even though they have come down.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:27
2
Why haven't mortgage rates fallen as much as Fed interest rates?
0:27–1:44
3
How do 10-year Treasury yields relate to 30-year mortgage rates?
1:44–3:47
4
Why are lenders keeping mortgage rates higher despite lower benchmarks?
3:47–4:25
5
What impact are current mortgage-rate dynamics having on the housing market?
4:25–5:39
6
How has stronger refinance demand affected lender staffing and pricing?
5:39–6:18
7
How can prospective borrowers find the most attractive mortgage rates today?
6:18–6:22
Speakers
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