Mortgage Rates; follow up on last week and a lesson in "averages"

In most things in life and sports (especially Baseball which is right around the corner) we pay a lot of attention to and put a lot of emphasis on averages. We look at average daily expenses for budgeting, we determine what time we leave for work or a trip based on the average time it takes us to get to our destination, we predict most things in our lives, no matter how important or how trivial based on averages. We also will perk up and take notice when those averages start trending in a new direction. For example we might look at our monthly gas expenses. Lets say it takes an average of $40 each time we fill up. Multiple factors play on that average but we subconciously take those into account. Lets say over a few weeks it only takes $35/tank but we also know that by chance over that time frame we were filling up with just under a quarter of tank already there. Then the next few weeks it takes $43/tank but we coasted in on fumes. We will still say that it takes $40 to fill up because we account for those little factors that are playing into small changes in the per tank price. We start paying attention when we notice the $43/tank goes to $45/tank under static conditions and that's when we notice that the per gallon price of gas has gone up and has stayed there and/or continued to move higher. Like all averages we account for, the longer the time period we're pulling our sample from, the more substantial or meaty that average is. For example if I say the average of gas over the last 7 days is $2.60/gallon, that means only so much to you. It's just 7 days. If i say that the average price of gas over the last 200 days is $2.60/gallon, that will carry a lot more weight just because that's a lot more days and a lot more tanks of gas that are being put into that average.

Mortgage rates are no different. A very important measuring stick is 200 day moving average. When bond prices are above that average, the 200 day is a very strong floor of support for prices and therefore a very strong guardian to low mortgage rates. When bond prices are below that 200 day average, it's very tough to break through and therefore it's very difficult to see interest rates move any lower without some seismic shift in the market or some Fed announcment/piece of legislation/etc., that changes the rules of the game.

On Feb. 23rd mortgage bonds made a break to the upside of that 200 day moving average and therefore we saw rates drop and stay very low. Almost 1 month to do the day later as the Fed began to exit the market as a big time buyer coupled with the passage of this Health Care bill, mortgage bonds dropped WELL BELOW that 200 day moving average on March 24th. With the Fed program gone and seeing rates rise and bond prices stay below that moving average for the past week, it is highly unlikely that interest rates will revisit those lows of 2010 that we were enjoying just a week and a half ago. So if you sat on the fence, you may have missed the boat. Rates are up compared to earlier this year and unless acted on by some as of now unknown force, they are going to stay there. As I said, that 200 day moving average is a tough cookie to break regardless of what side of it we're sitting on.

That said, rates are still VERY low when you look at those AVERAGES. That word keeps popping up huh? Since 1972, the average 30 year fixed rate mortgage is 9.04%, I locked loans today at 4.875%....comparing that to the average over the last 38 years, that's pretty strong isn't it? Compared to the 4.5% 30 year fixed loans I locked and closed a few months ago, it "feels" a lot higher. It has to be kept in perspective. The point is that we're not going to get any better on rates for the most part. Just like with gas, $2.60/gallon might be the average and for some reason one day you notice it's only $2.55/gallon one day, you're not immediately going to say that's the price of gas, it's going to have to stay there for awhile. There are always little blips on the radar. So there MAY be a little drop in rates for a day but on the whole rates are up and headed only higher. Make a move, either get that refinance closed that you've been waffling over and secure your money, long term, at historically low rates or get moving on that purchase so you can buy the new house at a 10% or more discount also at historically low rates (not to mention you still have 30+ days to get the tax credit) and don't "wait for thiings to get better."

If you wait, the average says you're playing a losing hand. Call me for further details but I will do my best to help you secure that rate, long term, at lowest cost possible. Calling me to find out is free, finding out too late is a very expensive mistake.

Lets chat, it's a quick and easy conversation and it could save or make you thousands in the long run.