Thursday, September 10, 2020

Get ready to refinance. Again.

Get ready to refinance. Again.

At least there is one positive aspect to the COVID-19 crisis, the drop in interest rates.  And notice I said get ready.  It appears it would be better to wait to refinance. If you can.

The Green line in the image above is the difference between the 10 year Treasury bond rate and 30 year mortgage rates.  If you notice, during the 2008 and current recessions the difference between those two rates expanded dramatically before eventually closing.

I downloaded the data from the graph above.  The average difference is 1.76% with a standard deviation of 0.29%.  Right now we are at a ~1.65 standard deviation event, which is very unusual.  To put it another way, if mortgage rates were 'average', right now they would be 2.44%

Yes, a sub 2.5% 30 year mortgage.

Now, we may not get there.  10 year Treasury rates could rise before the mortgage market normalizes, or they could go down.  I'm not going to make a prediction on interest rate movements in this post.  But if nothing happens with longer term Treasury rates we could see a sub 2.5% 30 year mortgage rate in the future.

Refinancing your house is only an option if you can, and for quite a bit of America this unfortunately is impossible due to business or job dislocation. But if you are able, go to the link above and watch it weekly. I sure am.