Mortgage rates moved lower for an impressive 4th straight day. That hasn’t happened since late July, but there are a few caveats. First off, while the streak may be the longest in a few months, it’s not the biggest. Rates fell at a faster pace at the end of September but in a slightly more volatile pattern. The bigger catch, perhaps, is that rates had achieved fresh 20-year highs just before the current winning streak began, and it’s not that uncommon to see some stronger improvement immediately following big spikes to long-term highs. All of the above having been said, the gains are far from insignificant.
The average lender is roughly 0.375% lower from last Thursday in terms of the “note rate” (the rate that actually applies to a mortgage as opposed to the “effective rate” or APR which factors in upfront costs). Effective rates have been a bit of a moving target due to pricing challenges presented by illiquidity in the underlying bond market. Big words, but here’s the gist: during more normal times, lenders are able to sell mortgages at a premium (meaning an investor might pay something like $410k for a $400k loan and earn their profits over time by collecting interest on a rate that would be comparatively higher than a non-premium scenario).
Premium pricing requires a good amount of volume of loans in a certain rate range and good amount of stability. We have neither in 2022. The bonds that make premium pricing possible are in their infancy–not a high volume, liquid market. There’s also been a ton of volatility. For both those reasons, investors haven’t been eager to pay the premium for loans with the comparatively higher rates.
