Are 5% rates gone?!?

Hi Friends!

Sorry this newsletter is a little delayed. I intended to send it out Monday, but I’m glad I waited because it has been interesting to watch the market reactions to both Jobs Week and the situation unfolding in Iran.

For starters, let me say this newsletter is never intended to be political. The news I present is strictly to discuss how headlines impact the economy and, ultimately, the bond and mortgage-backed securities market.

That being said, the conflict with Iran has absolutely moved the financial markets and will likely continue to do so because of its impact on oil prices. The market has had almost no reaction to the latest employment reports which leads me to believe Friday’s report will have little impact to MBS.

So why then does Oil matters to mortgage Interest Rates?

Higher oil costs = higher transportation and production costs.

Higher costs to produce goods and higher costs to import and export goods = renewed fears about rising inflation.

And rising inflation is bad for mortgage interest rates.

The financial markets adjust immediately based on inflation expectations, and because of that we saw a move to the highest mortgage rates we’ve seen in about three weeks.

Now that sounds pretty dramatic, but in reality the move has been fairly contained because mortgage spreads are much better than they were last year.

Rates have moved roughly from 5.99% to about 6.125%.

If we were still dealing with the mortgage spreads we saw in 2023 and parts of 2024, rates would likely be sitting somewhere in the 7% range right now  (For current rates you can always check HERE)
 

Still, this is a jolt in the opposite direction and another reminder of why trying to time the market rarely makes sense from an investment standpoint.

There are simply too many variables outside of anyone’s control. As real estate advisors, it’s important that we help buyers understand this.

So what does this mean in real dollars and cents?

On a $400,000 loan using principal and interest only payments:

At 5.99%
Payment is about $2,396 per month

At 6.125%
Payment is about $2,430 per month

At 6.25%
Payment is about $2,463 per month

At 6.375%
Payment is about $2,496 per month

I share this because buyers tend to make decisions emotionally and then justify them logically.

This may only be about a $100 difference in a monthly payment, but I’ve seen buyers hesitate over far less than that.

A $100 increase in payment can reduce buying power by roughly $15,000, and this change happened in just a matter of days.

Buying when the budget works, in an area that historically appreciates 3–5% annually, and holding the property for five+ years has consistently been one of the strongest long-term strategies.

On that note, Coality just released their January Home Price Insights report, and they are forecasting 4.4% national home price appreciation this year.

From an investment standpoint, if someone purchased a $400,000 home with 5% down ($20,000) and home values increased by 4.4%, that would represent about $17,600 in equity gained in the first year alone.

That’s nearly a 100% return on the initial cash investment before considering loan paydown.