Banking & Finance, Economic Development, and Real Estate

Expert: Mortgage rates should continue to increase

Low unemployment rate among many factors contributing to gradual rise.

November 16, 2018
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(As seen on WZZM TV 13) Mortgage rates are steadily increasing.

According to Joshua Gibbs, community president/commercial lending for Commercial Bank, the mortgage rates in the area now are anywhere from 5 percent to 5.25 percent for a 30-year fixed rate and 4.5 percent to 4.875 percent for a 15-year fixed rate in West Michigan.

Gibbs said mortgage rates have been increasing since November 2016 but not in a linear direction. According to Freddie Mac, 30-year mortgage rates in the U.S. have been between 3.8 percent to 4.94 this year. Last year, the mortgage rates were between 3.76 and 4.3 percent and in 2016, the mortgage rates were between 3.42 to 4.3 percent.

The low unemployment rate has contributed to the increase in rates. According to the Bureau of Labor and Statistics, the unemployment rate in the Grand Rapids and Wyoming area in September was 2.6 percent, in August, it was 2.7 percent, in July, it was 3.6 percent and in June, it was 3.3 percent.

Although the unemployment rate is not the sole driver that dictates whether mortgage rates go up or down, Gibbs said mortgage rates are affected by unemployment numbers.

“Mortgage rates are determined in the market daily because mortgages are pooled and sold daily to investors,” he said. “Rates are based on these investors’ appetite for the income generated by the return from a collection of mortgages, commonly known as mortgage-backed securities. While mortgage rates are transactional, the unemployment rate is a collection of employment statistics that are compiled for the purposes of reporting one measure of the health of the economy at a given time. Employment reports can impact the bond market. A strong job report may signal inflation, which negatively impacts the bond market and mortgaged-back securities, causing rates to go higher. On the converse, a weak jobs report may cause mortgage rates to go down as investors seek the safety of these financial instruments.”

Bob Smith, vice president and mortgage loan officer at Chemical Bank, said while a growing job market and a lower unemployment rate is great for the economy, it does create inflationary pressures and forces mortgage rates to increase.

In addition to inflation and unemployment, mortgage rates are driven by other economic factors that take place around the world, determining whether mortgages go up or down.

Smith said one of the factors that can influence mortgage rates is global economic unrest, which can cause some money to flow into safe havens such as bonds.

One national factor that goes into the decision of what mortgage rates are is the 10-year U.S. Treasury note. Eric Burgoon, chief lending officer for Lake Michigan Credit Union, said the 10-year Treasury note rate is commonly tied to long-term mortgage rates because a lot of mortgage rates are 30-year fixed rates.

“We do set our consumer loan rates based on the prime rate, the rate banks charge their best customers,” he said. “This generally includes home equity loans and auto loans. Mortgage rates, 30-year and 15-year fixed are based upon longer-term rates, generally the 10-year Treasury Bond.”

While there are international, national and local influences that dictate which direction mortgage rates will go, individual circumstances determine a person’s mortgage rate, such as the type of mortgage, income, debt and credit score.

Currently, Smith said there is a decrease in the number of refinancing applications being filed in the greater Grand Rapids area because it still is a seller’s market.

Although there are many components like inflation, the bond market, housing market conditions, and Federal Reserve monetary policy, Gibbs said he believes mortgage rates will continue to increase.

“It appears that rates will continue to hold up at their current levels and continue to inch up, barring any economic headwinds,” he said.

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