Greek Crisis Sends Mortgage Rates Lower this Week
Mortgage rates recently hit a high for 2015 but will decline this week. This past Sunday, the citizens of Greece voted "no" to a referendum to accept austere bailout terms by creditors. The no vote sent bond yields lower in Europe and the United States.
Yields on 10 year U.S. Treasuries fell 12 basis points on Monday and are down another 5 basis points this morning. Lower bond yields will send mortgage rates lower because lenders set rates based on bond yields. Average 30 year mortgage rates are already down from 4.17 percent to 4.09 percent this morning.
30 year Mortgage Rates Will Fall Back Below 4.00%
30 year rates will fall further this week and possibly fall back below 4.00 percent. The last time average 30 year mortgage rates were below 4.00 percent was at the end of May 2015. Mortgage rates were forecast to head higher in 2015 but so far that hasn't happened. 30 year rates were forecast to hit 5.00 percent this year but that is looking more and more unlikely.
In late June I wrote an article about the short term direction of mortgage rates being dependent on what plays out in Greece. The no vote on more austerity puts Greece one stop closer to a Grexit, an exit from the Eurozone. If Greece does leave the Eurozone, we could see 10 year bond yields and 30 year mortgage rates fall towards record lows set in 2013.
Bond Yields and Mortgage Rates Will Eventually Head Higher
After the dust settles in Greece, bond yields and mortgage rates will head higher because the Federal Reserve is set to increase interest rates. The Fed is expected to increase their key benchmark interest rate, the federal funds rate, sometime this year. An increase in the fed funds rate will send bond yields higher, which will send mortgage rates higher.
The CME Group's FedWatch has the probability of a 0.25 percent rate hike in September at 52.6 percent. A 0.25 percent rate hike will send 10 year bond yields higher by the same amount or more. 10 year yields are currently at 2.22 percent will probably move above 2.50 percent. 30 year mortgage rates currently at 4.09 percent will head towards 4.50 percent.
Higher Mortgage Rates Spurs Home Buying
Mortgage rates might head lower in the short term but in the long term, mortgage rates are going up. The hint of higher rates is already spurring home buying. The National Association of Realtors reported existing home sales in May soared to the highest mark since 2009 as new home sales climbed to a seven year high.
Lawrence Yun, chief economist of the National Association of REALTORS®, wrote "Buyers are coming back in force. One factor for the recent surge could have been due to the rising mortgage rates."
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