After falling from 5.59 to 5.38 the previous week it looks like mortgage rates for the most part held steady this week. Of the four major mortgage products two fell and two rose. But for all four the movement was minimal. Thirty year mortgage rates rose from 5.38 to 5.42 and the 5 year arm rose from 4.97 to 4.99. The 15 year rate dropped slightly from 4.89 to 4.87 and the 1 year arm fell from 4.95 to 4.93. Below are rates for the last few weeks.

Jun 25, 2009
30-yr 5.42 15-yr 4.87 5-yr ARM 4.99 1-yr ARM 4.93

Jun 18, 2009
30-yr 5.38 15-yr 4.89 5-yr ARM 4.97 1-yr ARM 4.95

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

May 28, 2009
30-yr 4.91 15-yr 4.53 5-yr ARM 4.82 1-yr ARM 4.69

Dec 24, 2008
30-yr 5.14 15-yr 4.91 5-yr ARM 5.49 1-yr ARM 4.95

So while the 30 year rate has dropped from its recent peak of 5.59 on June 11, 2009 we are still up from the extremely low rates we saw in May. One interesting thing to note is that in the last 6 months 30 year rates have increased from 5.14 to 5.42. On the other hand 5 year arms have dropped from 5.49 to 4.99. Even with these changes I would still look for fixed rates over arms. There is a good chance that rates could be much higher in a year or 5 years when the arms would expire.

In addition to rates we also like to look at actual mortgage payments. Using our mortgage calculator we took rates from this week and converted them into a mortgage payment on 200k loan. We also did the same thing with rates from June 18th and from December 24th (6 months ago).

Jun 25
30-yr $1125.55
15-yr $1568.07
5-yr ARM $1072.42
1-yr ARM $1065.1

Jun 18
30-yr $1120.56
15-yr $1570.15
5-yr ARM $1069.97
1-yr ARM $1067.53

Dec 24
30-yr $1090.82
15-yr $1572.22
5-yr ARM $1134.32
1-yr ARM $1067.53

So as we can see the movement in the last week is minimal. Compared to 3 months ago a mortgage payment today would be $34.73 higher or 3.18 percent. Even though mortgage rates are higher than what they were before current rates are still low by historical terms.

Mortgage rates only provide part of the picture for how the lending environment is affecting the real estate market. The other part is that lenders remain very strict in their policies on when they will give out loans. So lenders are offering loans with low mortgage rates but they are not offering them to everyone.

This of course is having a serious dampening effect on the real estate markets potential recovery. Freddie Mac is particular is enforcing a number of new rules. While the government has spent significant resources on keeping mortgage rates low and easier and more effective method to help the real estate market would be to look through Freddie Mac's loan restrictions.

Ki is a realtor in Austin Texas. His site is a resource on Austin Texas real estate. It also provides a mortgage widget along with mortgage calculator code

Last week mortgage rates moved up rapidly, moving up from 4.91 to 5.29. This week mortgage rates again jumped up .3 points going from 5.29 to 5.59. On May 21st rates were sitting at 4.82 which was a 40 year low. Now just a few weeks later rates are at 5.59. This is the highest we have seen rates since November 26, 2008. Unlike last week this week all the other major mortgage products went up as well. The 15 year rate jumped from 4.79 to 5.06. The 5 year arm moved from 4.85 to 5.17 and the 1 year arm moved from 4.81 to 5.04.

So what caused the sudden spike in mortgage rates? Basically the government had a few recent auctions of government debt that went poorly. With less interest in government debt, t-bills and mortgage rates have started to increase.

Below are rates for the major mortgage products for the last few weeks.

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

May 28, 2009
30-yr 4.91 15-yr 4.53 5-yr ARM 4.82 1-yr ARM 4.69

May 21, 2009
30-yr 4.82 15-yr 4.50 5-yr ARM 4.79 1-yr ARM 4.82

May 14, 2009
30-yr 4.86 15-yr 4.52 5-yr ARM 4.82 1-yr ARM 4.71

Dec 11, 2008
30-yr 5.47 15-yr 5.20 5-yr ARM 5.82 1-yr ARM 5.09

In addition to rates we like to look at mortgage payments. Using a mortgage calculator we took rates from this week and translated them into a mortgage payment for a 200k loan. We also did the same thing with rates from June 4th, May 28th and from December 11, 2008 (6 months ago)

Jun 11
30-yr $1146.89
15-yr $1587.84
5-yr ARM $1094.51
1-yr ARM $1078.53

Jun 04
30-yr $1109.36
15-yr $1559.79
5-yr ARM $1055.38
1-yr ARM $1050.53

May 28
30-yr $1062.66
15-yr $1533.05
5-yr ARM $1051.74
1-yr ARM $1036.07

Dec 11
30-yr $1131.81
15-yr $1602.5
5-yr ARM $1176.05
1-yr ARM $1084.67

So as we can see mortgage payments have jumped drastically. Compared to 2 weeks ago the mortgage for a 200k loan has increased by $84.23 or 7.3 percent.

One point is that although rates have jumped rapidly historically speaking rates are still very low.

So what do we expect moving forward? There is some speculation that rates will fall after the recent rise. I am not sure if this will happen or not there are some powerful forces moving mortgage rates. And regardless of what happens in the next few weeks with the massive government borrowing its expected that in 6 months rates will be significantly higher than what we are seeing today.

So what is our advice to people looking for a home? First of all I would lock in immediately. While rates might go down there is a significant chance will continue to rise. If rates fall you can always relock at the lower rate. Additionally, I would avoid arms. Although the difference between 30 year rates and arm's has increased I would expect rates to be much higher in a year.


Ki lives in Austin Texas. His website provides information on Austin Texas real estate. It also provides a mortgage widget and a free mortgage calculator.

Recently the news has been dominated by developments with the 700 billion dollar bailout package, and rightfully so. 700 billion is an astronomical sum of money. The first problem is that the 700 billion dollar bailout adds a huge amount of money to the national debt. Not only that, some have hinted that the bailout is so large it could actually lower the US Credit Rating. The second problem is just as serious. There is no guarantee that the bailout will work.

The idea behind the bailout is that by taking on billions of dollars of toxic loans the government hopes to "influence" banks to start lending again. The past attempts of the government to "influence" banks have all failed. The fed lowered the fed rate to influence banks to lower mortgage rates. While the banks were appreciative of lower rates they did not lower mortgage interest rates. In fact after the fed cut rates the banks increased mortgage rates because they saw negative prospects in the housing market. In a similar way, after the US government takes over the toxic loans away from them the banks could continue to see negative prospects in the housing market and therefore would continue to have strict lending practices. The idea of spending 700 billion with no guarantees seems like a poor use of capitol.

When people hear the word "National Bank" the first thoughts are of a socialized banking system. A national bank would not replace the current banking industry. It also does not "introduce" government involvement into the banking industry. With the Fed influencing interest rates and the government rushing in to bailout every bank that runs into problems the government already has a large hand in the banking industry. I don't want to argue whether the government should have a role in the banking industry. Currently the government already has a significant role in the banking/mortgage industry. My argument is that if the government does have a role it should be effective and cost efficient.

A national bank would be a cheaper and more cost effective way to steady the financial markets. To understand how a national bank would work lets first talk a little more about what is currently causing the housing crisis. The mortgage market operates a little like a basketball game. Lenders go from one extreme to another. For awhile lenders will lend to anyone that walks in the door with a pulse. During these periods lenders accept less and less qualified applicants in an attempt to gain market share. Then the lenders get freaked out (often because someone realizes they have been giving out billions in loans to unqualified applicants that are unlikely to pay their mortgages) and lenders run to the other extreme and practice extremely restrictive lending practices (the insurance industry sees the same cycles but that is another topic). If you haven't already guessed currently we are in the second scenario with lenders practicing extremely restrictive lending practices. The problem with the second situation is that such extreme changes shocks the housing market and basically causes a financial crisis. The banks are in a catch 22. If collectively the banks don't lend the housing market will continue to deteriorate. But no one wants to lend because they are worried the housing market will continue to deteriorate because collectively they are not lending. It's kind of like at a party where you don't want to be the first person to jump into the pool because if no one else does you look foolish. Substitute looking foolish with going bankrupt and you kind of see where banks are coming from.

The great depression and the S&L crisis were both basically examples of this same problem. Initially during the great depression the conventional logic was the government should not intervene. As the stock market continued to drop (it dropped over 80% in less than a year) and people realized how bad an economy can get (pretty bad) the idea of government intervention seemed more palatable compared to the alternative.

So now during periods where lenders are freaked the government attempts to "influence" lenders. The problem is its extremely expensive. Currently the government is taking on years and years of bad loans in an attempt to "influence" lenders to loosen their current restrictive lending practices for the next 6 months to pull us out of the housing crisis. This is kind of like trying to influence your local school to spend money on new textbooks by building them a new school. Not only is it ridiculously expensive after you build the new school you have no guarantee they will buy the textbooks. It's not simply a poor use of government funds it's utterly outlandish.

So how would a national bank operate? During periods where banks are giving out loans to everyone that walked in the door the national bank would practice have average lending restrictions with interest rates slightly higher than what is available at most banks and give out very few loans. When the banks became ultra restrictive the bank would again have average lending restrictions. During these periods it would give out more loans.

So the government would not practice the outlandish lending practices we saw during the boom they would not be as restrictive as the banks are now. In fact this would probably do more to influence banks lending practices than the 700 billion giveaway. Remember how we talked about banks not wanting to lend money because no one else was lending money therefore making them nervous about the prospects of the housing market. Knowing that money would always flow provides some stability to the market. Also it would be much less expensive. Having the government provide some loans over the next 6 months with average restrictions during a low point in the market would be much better than taking on years of crappy loans given out during the peak of the market to very unqualified home buyers.

Would some banks go under? Yes. But you know what they should. Bailing out foolish banks that threw caution to the wind and had wildly risky lending practices almost guarantees that we will be faced with another housing crisis in the future. Instead we should allow some of these banks to die. First it prevents these banks without a sense of risk from causing these problems again. Secondly, it influences other banks to exercise more caution during boom times. The bailout sends a message to banks that during the boom they should ignore caution because the government will come in and take all their bad loans away like some kind of bizarre magical bad loan tooth fairy.

I realize this article might bother people that want the government to have no role in the banking/mortgage market. But if we accept that the government already has a role in the banking industry (the possibility of the government taking itself out is pretty much nill for the next decade) to stabilize markets at the least it should do so in a way that is effective and cost efficient.

Escapeso Realty is a small company in central Texas. Their site has up to date information on the Austin real estate market. It also has a search of the Austin MLS for visitors and a tool that tracks mortgage interest rates.