Friday, January 24, 2014

Mortgage Rates compared to Ten Year Treasury Yield and Refinance Activity

by Calculated Risk on 1/24/2014 11:49:00 AM

From Freddie Mac yesterday: Fixed Mortgage Rates Move Lower for Second Consecutive Week

Freddie Mac ... released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates drifting slightly lower for the second consecutive week amid recent reports that inflation remains subdued.
...
30-year fixed-rate mortgage (FRM) averaged 4.39 percent with an average 0.7 point for the week ending January 23, 2014, down from last week when it averaged 4.41 percent. A year ago at this time, the 30-year FRM averaged 3.42 percent.

15-year FRM this week averaged 3.44 percent with an average 0.7 point, down from last week when it averaged 3.45 percent. A year ago at this time, the 15-year FRM averaged 2.71 percent.
Mortgage rates and Refinance indexClick on graph for larger image.

This graph shows the 30 year fixed rate mortgage interest rate from the Freddie Mac Primary Mortgage Market Survey® compared to the MBA refinance index. 

The refinance index dropped sharply last year when mortgage rates increased (activity down 67% from last May).

The second graph shows the relationship between the monthly 10 year Treasury Yield and 30 year mortgage rates from the Freddie Mac survey.

Mortgage rates and 10 year Treasury YieldCurrently the 10 year Treasury yield is at 2.72% and 30 year mortgage rates are at 4.39% (according to Freddie Mac). Based on the relationship from the graph, the 30 year mortgage rate (Freddie Mac survey) would be around 5% when 10-year Treasury yields are around 3.33% (unlikely any time soon).

Note: The yellow marker is the current (last week) relationship.