Solano Real Estate Scene: Mortgage rates sure to change in 2022
The best way to monitor the 30-year fixed rate mortgage market is to keep an eye on the yield for the 10-year treasury, which is one of the indexes mortgage bankers and agencies, like Freddie Mac and Fannie Mae, use to price out their loans each morning.
Mortgage rates and treasury bonds change daily based on supply and demand. The demand comes from investors who buy zero risk bonds that are guaranteed and backed by the full force of the United States of America. The yield Jan. 4 on the 10-year bond is up from 1.40% last month to 1.68%.
So, you might ask, who in the heck would make an investment and tie up a bunch of money for 10 years for a 1.68% rate of return?
Pension plans like the California Public Employees’ Retirement System, the California State Teachers’ Retirement System, municipalities, countries like China, 401(k) plans and individuals who want to make a flight to quality for some of their retirement funds and investments are who the buyers are today.
The pandemic, inflation, global warming, our government, the Build Back Better plan, the national debt, the government spending, huge deficits, income tax increases, riots and looting, the brazen smash and grabbers, a 2008-type crash from stretched stock market valuations are all things people may be scared of, and so they want to diversify from 99% of their funds in stocks and real estate to maybe 80% in these markets and 20% in cash and bonds.
The national average the week of Dec. 31 for the 30-year fixed rate on loan amounts below $647,200 was 3.34% and jumbo loans were running at 3.25%, which is highly unusual because jumbos are historically higher and considered more risky than conforming loans. I can guarantee one thing: Mortgage rates will change in the future, or at least that is what I have been teaching my loan officers and telling my clients over the past 20 years when they ask what I think about rates. The latest numbers prove my point: The average for a 30-year fixed rate loan the week of Jan. 7 increased to 3.52%.
I always suggest people rate lock their loan at the application date because it is a much better problem to be rate locked and have rates go way down during the process than to float and have rates go way up.
My prediction for 2022 is that mortgage rates should remain below 4% for the next year, which is historically great for a home loan and the American dream.
Jim Porter, NMLS No. 276412 is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.