Over the past year the housing market has remained cool. One of the reasons is because the price of a morgage haven’t fallen as fast as the recent rate drops.
Melissa Cohn, a mortgage broker and banker at Family First Funding LLC in New York, said she has been trying to temper clients’ expectations in recent months about how low of a mortgage rate is available to them.
“A lot of people hear stories about where rates should be and come in with unreasonable expectations,” she said.
Mortgage rates are closely linked to yields on 10-year Treasury notes. Since the end of June, the Treasury yield has fallen about 0.4 percentage point, but the average mortgage rate has dropped just 0.16 percentage point. The gap between the two rates is near its highest in more than seven years, according to an analysis by Dow Jones Market Data.
The average 30-year fixed rate for a mortgage this week is 3.57%, according to mortgage company Freddie Mac.
Mortgage executives, traders and investors tend to watch the spread between the 10-year Treasury yield and the 30-year mortgage rate as a barometer of the mortgage market’s health.
“When the spreads widen, the banks make more money and the borrowers don’t get as low of a rate as they otherwise would have,” said Walt Schmidt, who oversees mortgage strategies at FTN Financial.
The spread indicates that mortgage lenders don’t have to lower rates to win business. When banks charge higher rates, they earn more on each loan. The major banks with large mortgage businesses include JPMorgan Chase & Co. and Wells Fargo & Co.