Here is an update from our trusty mortgage agent Jake Abramowicz:
“After MANY years of what seems like non-stop ups, we’re going to be seeing some sideways action and it’s mainly going to be lead not just by the stress-test, which is already seeing an impact on pricing, but by rising interest rates.
This past week we have seen an increase in rates by 15 basis points on ALL terms. All of them. This isn’t a joke, 15 basis point increase in one fell swoop is a ton, and to spread it across the board is rare.
This chart will summarize for you the last year in the bond market (5 year yields) which is linked directly to interest rates.
As I said on twitter at the beginning of this year, this market in 2018 will be drive mainly by consumer sentiment. I do not think for one second that seeing rates go up from high 2s to now close to mid/high 3s is going to be any good for consumer sentiment. When borrowers read the headlines that rates are going up this much, they know their cost of borrowing will be impacted. Furthermore, this may cause some delaying by those who don’t want to buy right away since they feel maybe rates will come back down (they won’t, not anytime soon IMO)
What I want to make clear is, the banks do not choose to change the rates on their own (obviously). Rates are driven by bond yields and when investors drive yields up (or down), interest rates end up moving. What’s annoying is that rates are like gas prices. When oil goes down, gas prices take forever to go down. When oil goes up, gas prices spike. Same with bond yields. Higher? Oh you bet rates are rising tomorrow. A drop? They take a while. (Can you blame a lender?)
So what should borrowers be doing? With the terrible job-loss numbers that came out last week I’d say there is a much smaller chance now that variable rates are going to rise soon. And I’m seeing lenders and banks keep cutting their variable-rate discounts so I’m pushing variable for two reasons.
1) It’s the best rate.
2) It’s the easiest rate to qualify for.
Couple more points. One, gone are the day where there are “one-size-fits-all” solutions. It seems like EVERY file I work on has some wrinkles which require a lot of detailed planning and I can say that the last ten files I had did not have the same pricing nor option. 2 years ago everyone was getting vanilla. Today? Lots of many different flavours.
Second, pre-approvals although very important are not a huge priority for banks and lenders. Therefore the majority of them increase rates on pre-approvals AND an overwhelming majority of buyers DO NOT take advantage of their 120-day window anyways. I’m not saying pre-approval rateholds aren’t important, I’m saying they aren’t given out at best rates anyways.
Thanks for reading. I welcome any and all questions. Oh and check out my fancypants new website when you can. Still working some kinks out but I’m pleased with the results.
Thanks,
Jake”
Please let me know if you have any questions.
Karen
