Rates Are Going Down, Down, Down, Except They Are Not.

July 31st, 2014

A common refrain I hear from mortgage borrowers is that rates are going down when they are not. I had a client insist recently that he knew rates were going down, and he expected a better interest rate than what he was already locked into. I looked into this, and saw that rates were exactly the same as when we had first started his transaction. I researched this and found that he was basing his statement that interest rates were down on a few old media stories he had heard. He actually said, “I know rates have been going down for the last 2 months!”

 

Huh? I checked, and interest rates went down for a few weeks out of the last 2 months, but the problem is that the media repeats the same story, over and over, via different outlets, even after the market move is finished. The way media reports a story multiple times makes it sound like rates are moving a lot more frequently than they really are.

 

It doesn’t help that we humans may hang onto data we want to hear, and ignore data we don’t want to hear. This magnifies our perception that our investments are doing better than they really are, or that our work performance is better than it really is, or that mortgage rates are dropping and that we deserve a better deal on our mortgage.

 

There are several measures that one can use to get an idea of interest rate movements. What really moves mortgage rates are the Fannie Mae and Freddie Mac 10-Year Mortgage Backed Securities prices. For a quick gauge on what rates may be doing, I check the 10-Year T-bond. The problem in the case of my client’s situation above is that rates went down from 2.65% to 2.55% on the 10-Year T-bond over a period of a few weeks only, and mortgage rates barely went down 1/8%. When the media made it sound like rates went down 1%, or more, for a much longer period of time.

 

The same thing works in reverse when rates are going up slightly, and the same thing works for the stock market. The same thing works for most everything. You have to look at the accurate length of the market move and the accurate amount. The media can shout, “The DOW plummeted today,” but is an 83 point drop on a DOW hovering around 17,000 really plummeting just because some news writer says it is?

 

The 10-Year T-bond can go down a slight amount that barely moves the needle on mortgage rates, but it’s still a downward move, and the media will scream this to the public looking for attention and eyeballs.

 

My detailed reply to this particular client was:

 

“Rates are not lower today than when we started. I think the public sees the same story, repeated over time, in different media, that is likely an older story, through different media outlets, and it makes it sound like rates are dropping daily. In reality, the same story is being retold daily for weeks, or even months, while rates are in fact moving back up and bouncing around over time.

 

You can check out the bond market, specifically the 10-Year Treasury bond, which is really what drives mortgage rates, here: http://finance.yahoo.com/bonds.

 

The 10-Year T-bond was 2.52% last month, and it is higher at 2.53% right now. I know the media makes things sound different though. However, it was 2.62% last week, so 2.53% is down from last week, but as you can see, from when we first started the rates are a bit higher. So I’m sure there have been numerous media outlets screaming rates dropped all last week. The drop may have occurred on one day and it was very slight. 2.62% down to 2.53% is 0.09, that’s not even a full 1/8% in rate. The comparison to 1 month ago is even more interesting, where the 10-Year is 0.01 higher than a month ago. So the media can be a bit misleading, or at the least doesn’t fully explain all the details or describe the time span being discussed in detail.”

 

The bottom line is to not always believe general media headlines, and to do your own homework, talk to your mortgage lender in detail, and follow the market in as much detail as you can.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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