Why Mortgage Rates Increased Again​
The Home Loan Hub
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Published Dec. 20, 2022, at 2:50 p.m.
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“The Bank of Japan Loses Control”, as The Wall Street Journal puts it. In other words, The Bank of Japan increased its benchmark rate (The Japanese 10-year government bond) from 0.25% to 0.5%. The Japanese central bank’s target has been around zero for benchmark government-bond yields since 2016; primarily as a tool to keep overall rates low. Naturally, this caused the 10-year U.S. Treasury yields to increase.
Per my previous article, when the U.S. 10-year Treasury yield goes up, mortgage rates go up as well. And today, that happened again. Industry professionals anticipate that the market will cool off after this news settles. However, we’re unsure how long it will take and when things settle down, how low will rates go. You can see in the chart below that the U.S. 10-year Treasury went up significantly from December 19th to today, December 20th. If your lender told you rates were lower earlier this week than what they’re telling you today, they’re being honest.
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It’s not uncommon for international events to impact the U.S. economy and this decision by the Japanese government is no exception. The upside is that this can be chalked up as another international event that has temporarily influenced American interest rates and if this is true, then rates like the 10-year U.S. Treasury yields will settle back down and then mortgage rates will follow suit.
If you’re currently under contract to purchase a home and you haven’t locked your rate in, today might not be the day to do it. Be sure to stay in touch with your lender and lean on their expertise in volatile markets such as this one.
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3 Reasons to Stay Positive
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Streamline refinance – when rates do go down, contact your trusted lender and ask them about a “streamline refinance”
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Seller-paid rate buydown – some lenders are offering a “2/1 Buydown” which requires the seller to pay for the buyer to lower their interest rate by 2 points for the first year, 1 point for the second year, then the rate resumes for the remaining life of the loan at the original rate
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Seller-paid closing costs – this is a buyer’s market; this means sellers are more willing to negotiate on coming down with price and covering the buyer’s closing costs
Back to the Federal Reserve
The Federal Reserve increases the federal funds rate to manage inflation. Industry experts seem convinced that inflation is finally under control. Assuming that the fed agrees and holds off on further fed rate hikes, banks will begin loaning funds to one another at lower interest rates, which will help encourage consumer spending again. Additionally, when the market outlook becomes strong again, the 10-year U.S. Treasury yields will go back down and U.S. mortgage rates will follow once again.
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Terry Roberts is a U.S. Marine Corps Veteran and specializes in residential mortgages, including new construction, conventional, FHA, and VA home loans. He has helped more than 10,000 clients start the homebuying process across America.
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