If you haven’t already discovered it HSH Associates runs a great Web site with lots of free data for checking the latest mortgage rates. One of the things I keep hearing from Realtors and home builders is that rates are still low. That’s true if you’re comparing them to the 20% prime rate of 1980. Today’s rate of around 6.3% for a 30 year fixed rate mortgage is actually high when compared with other income investments. A 10-year Treasury bond yields 3.8% for example.
HSH analyst Keith Gumbinger says his firm went back and looked at the spread between 30 year mortgage rates and Treasury securities going back to 1986 and found a spread larger than today in only 32 of the more than 1,100 weeks. Those weeks were mostly back in 1986 and 1987. What that tells us is that investors are more than willing to buy safer government bonds today and less interested in riskier mortgage securities.
“Mortgage buyers are just on strike right now,” Gumbinger says. He figures if mortgage rates reflected a more normal spread to Treasury bonds, a home loan would cost more like 5.5% today.
Since my Mom keeps asking me what she should do with her beaten-up Fannie Mae and Ginnie Mae mortgage securities I asked Gumbinger the same. Don’t sell, he said. “Take your yield, be happy,” he said. “They make a very attractive investment right now.”
BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.