I. The 10-Year Treasury Dropped Into the 4% Range Today – And It Is Glorious (Flight To Safety)
After reading about 500 predictions over the last week that the 10-Year Treasury would soon hit 6%, it is wonderful to see it drop well below 5%.
The reason is again a “flight to safety,” as investors leave stocks for the “safety” of bonds.
This is another huge reminder that nobody can predict anything…and to expect the unexpected.
II. Seller Concessions + Arms = Payment Relief (5.875%)
Adjustable-rate mortgages (ARMs) pay less “rebate” (commission) than fixed-rate mortgages, so the best ARM rates often come with a small amount of points or origination fees.
In other words, because ARMs don’t pay as much commission, lenders need to charge points to make money, but the resulting ARM rates are very low.
(ARMs pay less rebate because lenders capture the yield that offsets the rebate cost for a shorter period, and because ARMs tend to pay off faster; lenders only pay rebate when they expect to recapture the expense from the mortgage payments)
We have two phenomena right now making ARMs far more advantageous than they were even a few months ago:
- sellers are more willing to grant concessions in many markets – giving buyers extra cash to pay for an ultra-low ARM; and
- lenders desperate for volume are lowering their ARM rates to entice buyers back into the market.
Our FHA ARMs are now in the 5% range, and our Jumbo ARMs are in the low 6% range.
In any case, we now offer three channels for payment relief: (1) Interest Only; (2) Temporary Buydowns; (3) ARMs.
III. Why Refis Are Even More Likely Now…
I remind readers constantly that rates never move in a straight line, even when they are trending upward. The dips along the way make it that much more likely that most borrowers taking out loans today can refinance.
But other factors are making refis even more likely.
- Credit Crises. I’ve hit this several times, but there are two credit crises (commercial and private) that are coming to a head. And when they do, rates will very likely drop.
- The AI Bubble. In this post, Chamath Palihapitiya explains why the AI bubble will likely pop (following up Ken Griffin’s similar prediction). TLDR: The bulk of AI spending is by VC-backed companies working primarily on AI and effectively charging each other. This will work great until one of them says… ”hey, wait a minute, we’re just passing money around in a circle…”
In other words, it seems pretty likely that sucker’s gonna pop at some point – and when it does, today’s “flight to safety” will seem like a walk in a park. We may be seeing the start today… - Pending Executive Order To Make Refis Cheaper. Fannie and Freddie offer lower rates for purchases than for refis. This is especially true for first-time homebuyers. There is a draft executive order pending right now, however, that would make the rates for refis closer to purchase rates – and that will make it even easier to refinance.
