We are bombarded by info about mortgage rates. You can’t even listen to the radio for long these days without hearing an ad imploring you to “refinance now, as rates have turned lower.”
Here’s the problem: Much of the general rate information reported to consumers is just too old and generic to be helpful to actual living, breathing people, spiffy commercials notwithstanding.
Consumer media outlets report on mortgage rates as if they move glacially and are the same everywhere, for everybody. This, simply put, is wrong. Mortgage rates are constantly changing and vary by location, by loan product and terms, and by borrower.
Most people are left with the impression that mortgage rates are less dynamic than they are. That’s because the rates are complex to follow, so most reports about them have to be overly simplified to focus on averages for the most popular loan products.
Most consumer-targeted mortgage rate stories are based on the weekly reports issued by Freddie Mac on the averages they collect by surveying lenders. These reports come out every Thursday.
Even if you accept these simple averages as representative of the overall trend—when rates are on the move—the weekly averages are slow to represent the true current levels.
The misdirection game
Last week, the news on Thursday was “Mortgage Rates Largely Unchanged.” That’s because the Freddie Mac survey average last week for the 30-year conforming rate was 3.42%, exactly the same average as the previous week.
That would make you think that rates are very calm. And in terms of the weekly series, the average reported last week was only 1 basis point higher than the lowest weekly point this year, which was reported back on July 7. (A basis point is 0.01 percentage point.)
But this weekly view gives you the false impression that rates are stable and have been all summer and fall. In reality, rates have been fairly volatile. By my calculations of daily averages of lender rate offers, mortgage rates have moved an average of 5 basis points within each week since the last week in June. Five basis points affects a monthly payment amount by 0.6%, so this is anything but calm.
Over the past 15 weeks, we’ve had seven down weeks and eight up weeks in rates. That’s why they seem unchanged.
And last week saw the single biggest amount of weekly change during that time period—upward movement.
So here’s the most confident forecast I can give you about mortgage rates: We’ll see many news reports on Thursday about how rates have jumped in the past week. The average for the 30-year conforming rate will likely be reported on Thursday as being up more than 10 basis points and possibly up by as much as 14 basis points.
The current upward movement in rates is a reflection of financial markets globally expecting less quantitative easing from the European Central Bank and another hike by the Federal Reserve this December.
It is tough to predict exactly where rates will be in any given day, week, or month, but the general consensus from here is that we are likely to see a gradual movement upward.
When the media begin to focus on this, expect a lot of focus—and rightfully so—about the impact of higher rates to borrowers.