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        <title>Seaport Real Estate Services Blog</title>
        <link>https://www.seaportre.com/blog/2018-02/</link>
        <description>Read up on the latest happenings in the housing market, plus get some tips whether your buying a new home or selling your old. We have must reads for first time home buyers. </description>
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    <guid>https://www.seaportre.com/blog/mortgage-rate-commentary.html</guid>
    <link>https://www.seaportre.com/blog/mortgage-rate-commentary.html</link>
        <title>Mortgage Rate Commentary</title>
    <description> <![CDATA[ 
 


Written by Robert H. Ruth


Over the past 2 weeks I have commented on the increased volatility in financial markets and the impact this volatility has had on mortgage rates. This volatility has happened before, many times. The situation now is to try and figure out whether the mortgage rate market is at a tipping point or if this is more of a transition.


The reality is that it is very hard to predict what will happen tomorrow today. So I’m not going to make any predictions about interest rates. I am going give you some targeted advice about how to react to these changes so you can make sound financing decisions


Volatility is here to stay (for now)


Due to the fact that the Federal Reserve is reversing their policies of quantitative easing and reducing their purchases of Mortgage Backed Securities, rates are bound to rise.  The reality is that the low rates we enjoyed were engineered by the Fed in response to the financial crisis. Now that the employment situation looks brighter in the US, and the economy seems to be more robust, we no longer appear to need the Fed to support the market.  As they exit their accommodative monetary policies, there is bound to be some good days and some bad days …this is normal. Think of a child who is on a sugar high: when the candy dish is taken away the child will be very irritable. That is where the market is right now.


Stay Optimistic


This is not the end of good times for the housing market. This is the beginning of a new phase for the housing market. As rates rise, we may very well see more properties come on the market. That would be a positive development, because the biggest driver for all the appreciation in the last couple of years was a shortage of inventory. As I write this, the inventory of houses on the market nationally is at 3.4 months. Normal is 6 months.  This has created the seller’s market we are in now. As more homes come on the market, prices will not be as firm, there will be more negotiation, and it will become more of a buyer’s market.  That is a good thing.


Rates are STILL Very Low


They just are not historically low. At the end of 2017 the average rate for a 30 year mortgage was 3.875. Today, it is 4.375. Here is how that breaks down on a $300,000 mortgage:










30 Year Mortgage Rate






Monthly P/I Payment






Monthly Difference in Dollars






Percent Change Each Month








3.875






$ 1410.71






-




 






4.375`






$ 1497.86






$ 87.15






6.18










 


So you can see that even though rates have gone up by .50, payments have only increased by 6. The message here is that rates are still extremely low and that means that payments are still quite affordable. But rates move …often...and quickly, so my next point is really important


Lock in Your Interest Rate  Do Not Float


In my opinion, the rate is important, but you don’t make the rate every month, you make the payment.  If you are applying for a mortgage, and the payment works for you and you will be able to comfortably pay that amount in the future, by all means, lock it in.


Do not try to guess the direction of the market, and do not let a mortgage broker tell you to float. You might end up slightly lower, but the odds are you’ll be in for a nasty surprise, and end up with a higher rate, and a higher payment.  Catching rate moves is just like trying to catch a falling knife…very hard to do, and you might get a nasty cut in the process. In my 31 years in the business, I have always advised my clients to lock in at application which secures their monthly payment for the future. If rates were to fall before closing most lenders have float down options which allow you to break the existing lock and grab the lower rate.


Tipping point vs. Transition


I do not believe we are at a tipping point in either rates or the market. In my mind, when I hear tipping point it makes me think of a sudden, swift, inexorable change in sentiment or direction. As Malcom Gladwell said in his book by the same name, a Tipping Point is: “ that moment when an idea, trend, or social behavior crosses a threshold, tips and spreads like wildfire.” We are not at that point. If we were, rates would have gone up much faster, and we would be much higher than 4.375 .


I believe we are in a transition between the historically low rates we enjoyed and the normalizing of rates.  I think it may take a while for rates to fully normalize, and the road to there may be bumpy at times. Think of an airplane on a long flight; there may be brief period of turbulence during the flight, but overall it is a satisfactory experience. It is still an excellent time to purchase a home and secure your payment for the future. Take advantage of this opportunity.


 


 


Robert H. Ruth


Senior Mortgage Banker


NMLS ID: 513243


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Fri, 23 Feb 2018 15:22:00 -0500</pubDate>
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    <guid>https://www.seaportre.com/blog/how-higher-rates-reduce-affordability.html</guid>
    <link>https://www.seaportre.com/blog/how-higher-rates-reduce-affordability.html</link>
        <title>How Higher Rates Reduce Affordability</title>
    <description> <![CDATA[ 



Written by Robert H. Ruth


 Over the past few weeks, we have seen increased volatility in the stock market, and this has taken many people by surprise. The market has begun to behave in a less predictable manner and this has caught people off guard.  They are not accustomed to, or do not remember that markets ebb and flow and occasional volatility is all a part of investing.   


People also may have conveniently forgotten that the low interest rates we have seen since 2009 are not normal.  Those rates were engineered by the Federal Reserve to keep our economy functioning during the most severe recession since 1929.  Without the intervention of the Fed, our economy would not have recovered from the recession as quickly as it has, nor would there be the confidence in the United States by investors throughout the world.


So now the time has come for the Fed to begin raising interest rates, and in step with that, for mortgage rates to rise.  This will have an impact on the housing economy because as rates increase, housing affordability will drop. So I wanted to write a post that shows you what the impact of higher rates has on mortgage affordability.  Before we begin, I wanted to show you graphically the history of interest rates in the US, so here is a chart showing a history of 30 Year Fixed mortgage rates for the last 45 years courtesy of Freddie Mac: 


 


And here is a chart from CNBC showing a 200 year history of interest rates in the United States:





Source: https://www.cnbc.com/2016/11/17/200-years-of-us-interest-rates-on-one-chart.htmlAs you can see from these charts, interest rates in the last few years have not been slightly below average, they have been massively below average. 


 


So what exactly happens to a monthly mortgage payment when rates go up, and what does that do to a borrower’s affordability?  Here is a quick comparison of monthly payments on a $ 300,000 mortgage loan…




at 3.875 ( the average for 2017), 


at 4.25 (the current average rate in the US),


at 5.18 (CNBC’s 200 year average,




at 6.75 (average from 1986-2007)






 


$300,000 Mortgage Payment Comparisons










30 Year Fixed


Mortgage Rate






Monthly P/I


Payment






Difference in Monthly Payment vs. 3.875






 Difference in Payment vs. Payment at 3.875








3.875






$ 1410.71






-






-








4.250






$ 1475.82






$   65.00






+ 4.6








5.180






$ 1643.63






$ 233.00






+ 16.5








6.750






$ 1945.79






$ 535.00






+ 37.9










 


So the effect of a small increase in rates will not necessarily derail your home buying plans , but if we see a large increase in rates, the increase in your monthly housing expense for the home you were thinking of buying may put that house out of reach.  At that point, something’s gotta give: either your dream of buying, or the prices of homes will have to come down.  


 


 


Robert H. Ruth


Senior Mortgage Banker


NMLS ID: 513243


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Fri, 16 Feb 2018 14:47:00 -0500</pubDate>
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    <guid>https://www.seaportre.com/blog/comments-on-the-recent-turmoil-in-financial-markets-volatility-appears-to-be-the-new-normal.html</guid>
    <link>https://www.seaportre.com/blog/comments-on-the-recent-turmoil-in-financial-markets-volatility-appears-to-be-the-new-normal.html</link>
        <title>Comments on the recent turmoil in financial markets - Volatility Appears to be the New Normal</title>
    <description> <![CDATA[ 



Written by Robert H. Ruth


Over the last 2 weeks we have been witnessing a significant change in the financial landscape in the United States. During this time we have seen the stock market come down from their recently achieved historic highs.  As the price of stocks has decreased, the value of investors’ portfolios, and 401K accounts, have been impacted.  




Whether this is a short term or a long term phenomenon remains to be seen.


The reality is that the rapid run up in market valuations since the election in 2016 occurred much faster than is normal, and therefore the likelihood of a correction had been anticipated for some time. 


What had not been anticipated was the swiftness with which the selloff has occurred. 


When this happens, it leaves investors with a feeling of a loss of equilibrium, a sense of uncertainty about the direction of their future.  This is to be expected.  




As the radio personality Paul Harvey used to say: “In times like these, it helps to recall that there have always been times like these.”


Typically, as stocks sell off, or there is uncertainty about the state of the economy, investors look for safe havens to place their money. Historically, the safest of safe havens has always been US Treasury Securities.




What happens is when money goes out of stocks, bonds appear attractive due to their relative safety, and their prices go up as investors buy them.


Because the price of bonds is increasing, the yield paid to investors who own bonds goes down.


And so if you want to get a good idea of the direction of mortgage interest rates it is important to really watch the day to day movement in the yield of the 10 Yr. Treasury Note. When the 10 Yr. Treasury yield goes up, rates are headed higher, and when the 10 Yr. Treasury yield goes down, rates are heading lower.




Why Is The 10 Year Treasury Note So Important For Mortgage Rates?


One of the reasons the movement of the 10 Year Treasury Note is a strong indicator for rates has to do with the speed of pre-payments on mortgages.  That is because most standard 30 Yr. Fixed Rate loans have historically been paid off by a refinance or sale of a home within 10 years. Also, 10 Yr. Treasury Notes and 30 Yr. Fixed Rate Mortgages are similar types of investments, so like-minded investors would be looking at both at the same time.


Since the financial crisis that began in 2007-08, the Federal Reserve has supported the markets by aggressively buying US Treasury Securities and mortgages backed by Fannie Mae and Freddie Mac. This intervention in the markets by the Federal Reserve is the main reason we have seen these historically low rates for the last 10 years. And the housing market has also been a big beneficiary of the Federal Reserve because the Fed, by buying mortgages, has kept mortgage interest rates low and the low rates have fueled the housing recovery. In essence, the Fed, by keeping liquidity in the system, gave the economy the needed stimulus to maintain their normal functioning and restore health to the economy.


It is helpful to remember that banks, by lending money, provide lubrication for the financial system, and in the worst days of the recession and housing crisis, the lending markets were in jeopardy of freezing up, so the infusion of massive amounts of liquidity by the Federal Reserve kept the markets functioning, kept lending alive, and allowed the banking system to return to  normal . This was like a super injection of vitamins into the monetary system of the United States economy.


This time however, things might be different, and here is the reason why


Over the past 12 months, we have seen evidence of a robust American economy as evidenced by an expanding economy, unemployment at 4.1, strong corporate earnings, increasing consumer confidence and the passage of the Trump tax plan. Since the economy has not seemed to need the assistance of the Fed any more, they have begun reducing the stimulus measures that helped bolster the economy. The Fed has publicly stated that is their intention to raise rates as conditions warrant in the economy.


So the Fed has begun raising short term rates, selling their holdings of US Treasury securities into the market, and reducing their support of mortgage backed securities. This is coming at exactly the same time that we are seeing the stock market beginning to undergo a correction. The question is whether the correction is long overdue, and would have taken place anyway, or has occurred due to the withdrawal of support measures by the Fed, or could be a combination of both.  


There is also an ominous undertone in the marketplace that says inflation is about to rear its head in the economy, and that thought has the markets spooked as well. The reason inflation is such a concern is that when wages and prices start to rise more than expected, the market may be overheating, and the Fed has to raise rates to slow it down.  In essence, the Fed reduces liquidity in the financial system to put downward pressure on prices.  And if the Fed has to aggressively raise rates to control inflation, we could see mortgage rates really rise.


And there is one other concern at the present time: over the last 2 weeks, as the market has sold off, we have not seen yields on Treasuries go down as they have in the past…they have in fact gone up…rates are actively rising. And that is putting upward pressure on mortgage rates.


So keep an eye on the 10 Year Treasury for a clue as to the direction of mortgage rates, and don’t get caught by surprise if this turmoil in the markets continues.  


Next week I’ll comment on how rising rates could affect the housing economy in 2 key areas: borrower’s monthly mortgage payments, and property values.


Robert H. Ruth


Senior Mortgage Banker


Direct: 401.789.4441


Mobile: 401.743.4364


Email: rhr11@icloud.com


 
  ]]> </description>
    <pubDate>Fri, 09 Feb 2018 15:07:00 -0500</pubDate>
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