While all the media talk has been about mortgage rates moving up, the bond market and actual mortgage rates have been quietly telling a different story here in 2016. And today that story is not so quiet anymore. Today the 10 year treasury yield broke below 2.0% which is definitely a newsworthy event in the financial world. Especially when considering the fact that the FEDERAL RESERVE just raised it benchmark FED Funds rate by .250% in December and has said it will continue to raise rates in 2016.
On best case scenarios, lenders are now offering 3.75% (3.79 APR) for a 30 Year Fixed Mortgage (0 points and standard transaction fees).
This is a full .250% improvement from what lenders here in San Diego were offering just 3 weeks ago.
So why are mortgage rates dropping? We can never know for sure, but the conversation starts with stock market and oil price declines. The economy is showing further signs of weakness both here domestically and world wide. China’s economy is showing weakness. And there continues to be minimal inflation present.
Just two weeks ago the media and the FED members would have had you believe that rates were absolutely going to move up this year. While this still can happen, it now doesn’t seem as likely. How things can change in two weeks!
Historically, the single biggest cause for rates to increase is inflation and not only is there minimal inflation showing in our economy, but there is real concern of zero inflation or even possibly some deflation. We know the FED is watching inflation very carefully and to the degree that inflation drops from current levels and the world economy continues to show weakness, it is possible they will not increase rates as much as forecast.
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