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Current Mortgage Rates Jump Back Above 3%

The average rate for a 30-year fixed-rate mortgage increased sharply to 3.10% this week.

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This article was originally published by Money

The average rate for a 30-year fixed-rate mortgage increased to 3.10% this week, according to Freddie Mac’s benchmark survey.

This week’s sharp 0.12 percentage point increase breaks a two-week streak of declines that even saw the 30-year rate drop below 3% last week. However, the latest increase is more in line with economists’ expectation that rates will move higher through the end of the year and into 2022.

The interest rate on a 15-year fixed-rate mortgage also moved higher, rising 0.12 percentage points to 2.39%

Mortgage interest rates for the week ending November 18, 2021

Mortgage rate trends

Mortgage Rate Trend Chart for November 18
Money

The average rates for fixed-rate loans were higher this week, while adjustable-rate loans moved lower:

  • The current rate for a 30-year fixed-rate mortgage is 3.10% with 0.7 points paid, increasing 0.12 percentage points week-over-week. Last year, the average rate was 2.72%
  • The current rate for a 15-year fixed-rate mortgage is 2.39% with 0.6 points paid, up 0.12 percentage points from last week. The rate is also higher than last year, when it averaged 2.28%.
  • The current rate on a 5/1 adjustable-rate mortgage is 2.49% with 0.3 points paid, sliding down by 0.04 percentage points from last week’s average. The 5/1 ARM averaged 2.85% during the same week last year.

“The combination of rising inflation and consumer spending is driving mortgage rates higher,” said Sam Khater, Freddie Mac’s chief economist. “Shoppers looking to buy a home are fueling strong demand while ongoing inventory shortages are not improving in the presence of higher home prices. This reality illustrates the challenging situation facing the housing market.”

Today’s mortgage rates and your monthly payment

The rate on your mortgage can make a big difference in how much home you can afford and the size of your monthly payments.

If you bought a $250,000 home and made a 20% down payment — $50,000 — you would end up with a starting loan balance of $200,000. On a $200,000 home loan with a fixed rate for 30 years:

  • At 3% interest rate = $843 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 4% interest rate = $955 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 6% interest rate = $1,199 in monthly payments (not including taxes, insurance, or HOA fees)
  • At 8% interest rate = $1,468 in monthly payments (not including taxes, insurance, or HOA fees)

You can experiment with a mortgage calculator to find out how much a lower rate or other changes could impact what you pay.

Other factors that determine how much you’ll pay each month include:

  • Loan Term: Choosing a 15-year mortgage instead of a 30-year mortgage will increase monthly mortgage payments but reduce the amount of interest paid throughout the life of the loan.
  • Fixed vs. ARM: The mortgage rates on adjustable-rate mortgages reset regularly (after an introductory period) and monthly payments change with it. With a fixed-rate loan payments remain the same throughout the life of the loan.
  • Taxes, HOA Fees, Insurance: Homeowners insurance premiums, property taxes and homeowners association fees are often bundled into your monthly mortgage payment. Check with your real estate agent to get an estimate of these costs.
  • Mortgage Insurance: Mortgage insurance costs up to 1% of your home loan’s value per year. Borrowers with conventional loans can avoid private mortgage insurance by making a 20% down payment or reaching 20% home equity. FHA borrowers pay a mortgage insurance premium throughout the life of the loan.
  • Closing Costs: Some buyers finance their new home’s closing costs into the loan, which adds to the debt and increases monthly payments. Closing costs generally run between 2% and 5% and the sale prices.

The latest information on current mortgage rates

Will current mortgage rates last?

After a two-week slide, mortgage rates moved higher once again thanks in large part to continued inflationary pressures. However, other indicators suggest the economic recovery seems to be picking up steam once again.

“If the economic recovery holds, this continuing inflation trend may increase the probability of the Federal Reserve instituting several rate hikes in 2022,” wrote Paul Thomas, Zillow’s vice president of capital markets in a blog post. “Supply chain issues continue to be the dominant topic of conversation, with markets trying to ascertain when these issues may be resolved. Any signs of continued struggles in the supply chain likely puts further inflationary pressure on interest rates in the near term.”

If the Fed does start increasing rate hikes next year, expect mortgage rates to increase further. For now, rates seem likely to stay hovering around the 3% mark for the remainder of the year.

On Wednesday, the yield on the 10-year Treasury note opened at 1.599%, lower than Tuesday’s close of 1.604%. There tends to be a spread of about 1.8 percentage points between the 10-year Treasury and average mortgage rates. Despite today’s lower opening, yields have been trending higher compared to last week and could be an indication that mortgage rates could start trending higher as well.

How are mortgage rates impacting home sales?

Even though rates moved lower during the week ending November 12, the total number of mortgage applications, thanks to a drop in refinance loans. Overall, applications decreased by 2.8% over the previous week, according to the Mortgage Bankers Association.

  • The number of purchase loan applications increased by 2% week-over-week and was 6% lower than the same time last year.
  • Refinance applications were down by 5% from the week before. Compared to the same week a year ago, there were 31% fewer applications.

“The second straight increase in purchase applications suggests that stronger sales activity may continue in the weeks to come,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

Current Mortgage Rates Guide

What is a good interest rate on a mortgage?

Today’s mortgage rates are near historic lows. Freddie Mac’s average rates show what a borrower with a 20% down payment and a strong credit score might be able to get if they were to speak to a lender this week. If you are making a smaller down payment, have a lower credit score or are taking out a non-conforming (or jumbo) mortgage, you may see a higher rate. A good mortgage rate is one where you can comfortably afford the monthly payments and where the other loan details (such as the length of the loan, whether the rate is fixed or adjustable and other fees) fit your needs.

How much does the interest rate affect mortgage payments?

In general, the lower the interest rate the lower your monthly payments will be. For example:

  • If you have a $300,000 fixed-rate 30-year mortgage at 4% interest, your monthly payment will be $1,432 (not including property taxes and insurance). You’ll pay a total of $215,608 in interest over the full loan term.
  • The same-sized loan at 3% interest will have a monthly payment of $1,264. You will pay a total of $155,040 in interest — a savings of over $60,000.

You can use a mortgage calculator to determine how different mortgage rates and down payments will affect your monthly payment. Consider steps for improving your credit score in order to qualify for a better rate.

How are mortgage rates set?

Lenders use a number of factors to set prevailing rates each day. Every lender’s formula will be a little different but will take into account things like the current Federal Funds rate (a short-term rate set by the Federal Reserve), competitor rates and even how much staff they have available to underwrite loans.

In general, rates track the yields on the 10-year Treasury notes. Average mortgage rates are usually about 1.8 percentage points higher than the yield on the 10-year note. Yields matter because lenders don’t keep the mortgage they originate on their books for long. Instead, in order to free up money to keep originating more loans, lenders sell their mortgages to entities like Freddie Mac and Fannie Mae. These mortgages are then packaged into what are called mortgage-backed securities and sold to investors. Investors will only buy if they can earn a bit more than they can on the government notes.

Why is my mortgage rate higher than average?

Not all applicants will receive the very best rates when taking out a new mortgage or refinancing. Credit scores, loan term, interest rate types (fixed or adjustable), down payment size, home location and the loan size will all affect mortgage rates offered to individual home shoppers.

Rates also vary between mortgage lenders. It’s estimated that about half of all buyers only look at one lender, primarily because they tend to trust referrals from their real estate agent. Yet this means that they may miss out on a lower rate elsewhere.

Freddie Mac estimates that buyers who got offers from five different lenders averaged 0.17 percentage points lower on their interest rate than those who didn’t get multiple quotes. If you want to find the best rate and term for your loan, it makes sense to shop around first.

Should you refinance your mortgage when interest rates drop?

Determining whether it’s the right time to refinance your home loan or not involves a number of factors. Most experts agree you should consider refinancing if your current mortgage rate exceeds today’s mortgage rates by 0.75 percentage points. It doesn’t make sense to refinance every time rates decline a little bit because mortgage fees would cut into your savings. You also have to consider whether your credit score would qualify you for today’s best refinance rates.

Many online lenders can give you free rate quotes to help you decide whether the money you’d save in interest charges justifies the cost of a new loan. Try to get a quote with a soft credit check which won’t hurt your credit score.

You could increase interest savings by going with a shorter loan term such as a 15-year mortgage. Your payments will be higher, but you could save on interest charges over time and you’d pay off your house sooner.

Should you buy mortgage points?

Many lenders sell mortgage points (also known as discount points). Buying points means you’d pay more up front to lower your mortgage rate which could save you money long-term. A mortgage discount point normally costs 1% of your loan amount and could shave 0.25 percentage points off your interest rate. (So, with a $200,000 mortgage loan, a point would cost $2,000.) Discount points only pay off if you keep the home long enough. Selling the home or refinancing the mortgage before you break even would short circuit the discount point strategy.

In some cases, it makes more sense to put extra cash toward your down payment instead of discount points If a larger down payment could help you avoid paying PMI premiums, for example.

How to shop for the best mortgage rate

Shopping around for the best mortgage rate can not only help you qualify for a lower rate but also save you money. Borrowers who get a rate quote from one additional lender are able to save $1,500 over the life of the loan, according to Freddie Mac. That number goes up to $3,000 if you get five additional quotes.

The best mortgage lender for you will be the one that can give you the lowest rate and the terms you want. Your local bank or credit union is one place to look. Online lenders have expanded their market share over the past decade and promise to get you pre-approved within minutes.

Shop around to compare rates and terms, and make sure your lender has the loan option you need. Not all lenders write USDA-backed mortgages or VA loans, for example. If you’re not sure about a lender’s credentials, ask for its NMLS number and search for online reviews.

Summary of current mortgage rates

Current mortgage rates snapped a two-week streak of declines, rising to 3.10%. The average rate for a 15y-year fixed-rate loan also moved higher, while the 5/1 adjustable-rate mortgage saw rates tick lower.

The average rates for fixed-rate loans were higher this week, while adjustable-rate loans moved lower:

  • The current rate for a 30-year fixed-rate mortgage is 3.10% with 0.7 points paid, increasing 0.12 percentage points week-over-week. Last year, the average rate was 2.72%
  • The current rate for a 15-year fixed-rate mortgage is 2.39% with 0.6 points paid, up 0.12 percentage points from last week. The rate is also higher than last year, when it averaged 2.28%.
  • The current rate on a 5/1 adjustable-rate mortgage is 2.49% with 0.3 points paid, sliding down by 0.04 percentage points from last week’s average. The 5/1 ARM averaged 2.85% during the same week last year.






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Economics

Why You Should Give an Extra Big Holiday Tip to Your Dog Walker and Babysitter This Year

The service workers who make your life easier deserve a bigger tip this year.

It’s December, and that means it’s time to work through your holiday gift list. In addition to presents for family and friends, it’s time to show appreciation for everyone who helped you get through the year. We’re talking about holiday tips and gifts for babysitters, dog walkers, in-home caregivers, house cleaners, and perhaps even your hair stylist and manicurist, not to mention the mail carriers and sanitation workers that visit your neighborhood every day.

Between ongoing challenges caused by the pandemic and shortages and price hikes caused by a global supply chain crisis, 2021 has been an unusual year. Service employees worked on the front lines of the pandemic, often for lower pay than white-collar workers who had the ability to work remotely. That’s one argument for making room in your budget for an extra big tip this year.

And then there’s inflation. If workers didn’t get a raise of at least 5% this year, they’re probably falling behind because of how quickly prices are rising. That’s another good reason to give a generous tip this holiday season.

Here are some more specifics, if you still need convincing about why it’s important to be more generous this year — and some advice on how much to give.

Inflation is making everything more expensive

Consumer prices have grown a record 6.2% this year. Almost all household essentials — from groceries to gas to clothing — are more expensive than they used to be.

In other words, your money doesn’t stretch as far as it used to. So that $100 tip you gave your dog walker in 2020? At today’s rate of inflation, it’s only worth about $94 this year.

Rising prices, especially for gasoline, have hit the workers in the service industry harder than most. “As costs continue to rise, it’s definitely affecting childcare providers,” says Morgan Clark, founder of STL Sitter, which employs 425 babysitters in the St. Louis area. “Many of our sitters will work three or four different jobs per day.”

That’s a lot of driving between jobs, and with gas prices more than a dollar higher than they were this time last year, the costs can add up quickly.

Not to mention the fact that low-paid childcare workers are quitting their jobs in droves this year. “If you combine the issue of inflation with a staffing shortage, and then you add in a high demand for service,” Clark says, “you have a recipe for chaos.”

Service workers took on extra risks in 2021

As in 2020, workers in the service industry faced additional risks — and sometimes, additional hurdles — related to the coronavirus pandemic. UrbanSitter co-founder and CEO Lynn Perkins noted that many families asked their caregivers to avoid public transportation and carpooling during the pandemic. Not to mention the inherent risks involved with a public-facing job that doesn’t allow a worker to limit their interactions to a small circle of people.

“If they’re being asked to jump through additional hoops due to Covid, I think that’s another reason to give a little more this year,” Perkins says.

Jessica Abernathy, president of the National Association of Professional Pet Sitters and owner of two petsitting businesses in the Chicago area, pointed out that many pet caregivers looked after animals when their owners were hospitalized with COVID-19 this year. “We’re there for you, no matter what the circumstances are,” she says of petsitters.

Tips are going up, but rates are too

In a survey conducted by UrbanSitter, 42% of 500 parents polled said they are planning on tipping their babysitters more than $25 this year. That’s up from 25% of parents who said the same in 2018. Another survey conducted by CreditCards.com found that 45% of people plan to give bigger tips than usual this holiday season.

UrbanSitter also found that childcare rates on its platform have risen 10.5% over the last year. That means that for families that tip their nannies and babysitters based on an extra week or two’s worth of pay rather than a set amount, an inflation-adjusted tip is already baked in.

But that’s not the case for everyone. Real hourly wages in October were 1.2% lower than the year before, according to data from the Bureau of Labor Statistics. For most Americans, wage gains haven’t been enough to keep up with rising inflation. So if you haven’t begun paying your babysitter more already, now is a good time to start.

Cash isn’t the only way to say thank you

If you don’t have the extra room in your finances for a holiday tip, there are still ways to show your appreciation for the people who helped you get through 2021 through thoughtful words or personal tokens of your thanks.

“Homemade gifts from the kids can go a long way in showing appreciation,” says Sheri Reed, Managing Editor for Care.com. “Things like a scrapbook of quotes from the kids or a heartfelt drawing are always a great idea.”

There’s also the gift of time: UrbanSitter’s Perkins recalls one family that gave their nanny an afternoon off and the use of their car when she was scheduled to work, as a holiday surprise.

Or if your dog walker has a pet of their own, Wag! CEO Garrett Smallwood recommends making a homemade puzzle toy or another DIY pet gift.

Service workers can find other jobs

Regardless of how much you tip, or whether you can afford to tip at all, a tightening labor market means that showing you value the service providers in your life is extra important in 2021. Caretakers and service workers are in especially high demand, and record levels of Americans quitting their jobs translates to more openings and tight competition for workers.

STL Sitter’s Clark says that on her platform, some families are even offering bonuses above and beyond a sitter’s rates to secure services. “Retention should be something that’s in the back of your mind when you’re thinking about tipping,” Clark says.

“If you really like your care provider, this is not a bad year to give a little bit more just because people are starting to look around [for other jobs],” says UrbanSitter’s Perkins. “If this is someone who’s really meaningful to your family…show them a little additional love this year.”

More from Money:

10 Best Pet Insurance Companies of December 2021

4 Ways the Labor Shortage Could Wreck Your Holiday Plans

6 Reasons You’ll Spend More Money This Holiday Season (Even if You Aren’t Buying Gifts)


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Economics

Here We Go: Market Begins Pricing In Rate Cuts As Yield Curve Inverts

Here We Go: Market Begins Pricing In Rate Cuts As Yield Curve Inverts

With Powell effectively confirming an earlier end to the Fed’s taper…

Here We Go: Market Begins Pricing In Rate Cuts As Yield Curve Inverts

With Powell effectively confirming an earlier end to the Fed’s taper program this week, parts of the US yield curve inverted, and as the chart below shows, forwards traders are starting to price in rate cuts in a few years suggesting the Fed will not only end its tightening campaign prematurely, but will be forced to cut relatively soon. 

And, we would add, the more stocks drop, the greater the priced in future rate cut will be. In fact, with the forward swaps curve now pricing in more than 10bps of cuts, we are now where we were in late 2018, just weeks before stocks tumbled 20% and Powell capitulated, sparking a massive rally as the Fed’s last brief tightening cycle came to an abrupt close.

In inverting, the US curve joined the UK, Europe and especially many Emerging Markets where yield curves have already inverted aggressively.

Commenting on this inversion, DB’s chief FX strategist George Saravelos argues that the omicron variant – irrespective of the precise immunological properties – would just help reinforce existing trends, not change them. It is a fallacy that the market has been “looking through” COVID.

What does he mean by this? In his own words: “weak US labor supply, strong inflationary pressure in the goods sector, high excess saving, very low terminal rate pricing, a stronger dollar and very negative real rates are all because of persistent COVID forces this year not despite of them. It’s the new “COVID normal”, very different from the “old”. Is the market right to price such late-cycle dynamics?”

His conclusion: “If the whole point of the Fed turning hawkish is to slow the economy down and take the unemployment rate back above the “new” NAIRU, the answer is yes.”

The only problem: Powell is also taking down the entire market down with him, and today risk assets made it clear that they will not go down without a fight, and will push back until Powell capitulates on his rate hiking plans.

Tyler Durden
Fri, 12/03/2021 – 14:53



Author: Tyler Durden

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Economics

High flying growth companies will badly damage new shareholders

The problem with having a huge amount of anticipated growth baked into your stock price is that the expectations become incredibly difficult to achieve….

The problem with having a huge amount of anticipated growth baked into your stock price is that the expectations become incredibly difficult to achieve.

High expectations result in high stock prices.

I’ll post the charts of two of these companies which are household names – Zoom (Nasdaq: ZM) and Docusign (Nasdaq: DOCU):

We will look at Zoom first.

At its peak of $450/share, Zoom was valued at around $134 billion. Keeping the math incredibly simple, in order to flat-line at a terminal P/E of 15 (this appears to be the median P/E ratio of the S&P 500 at the moment), Zoom needs to make $9 billion a year in net income, or about $30/share.

After Covid-mania, Zoom’s income trajectory did very well:

However, the last quarter made it pretty evident that their growth trajectory has flat-lined. Annualized, they are at $3.55/share, quite a distance away from the $30/share required!

Even at a market price of $180/share today, they are sitting at an anticipated expectation of $12/share at sometime in the future.

Despite the fact that Zoom offers a quality software product (any subscribers to “Late Night Finance” will have Zoom to thank for this), there are natural competitive limitations (such as the fact that Microsoft, Google and the others are going to slowly suck away any notion of margins out of their software product) which will prevent them from getting there.

The point here – even though the stock has gone down 60% from peak-to-trough, there’s still plenty to go, at least on my books. They are still expensive and bake in a lot of anticipated growth which they will be lucky to achieve – let alone eclipse.

The second example was Docusign. Their great feature was to enable digital signing of documents for real estate agents, lawyers, etc., and fared very well during Covid-19. It’s an excellent product and intuitive.

They peaked out at $315/share recently, or a US$62 billion valuation. Using the P/E 15 metric, the anticipated terminal earnings is about $21/share.

The issue here is two-fold.

One is that there is a natural ceiling to how much you can charge for this service. Competing software solutions (e.g. “Just sign this Adobe secure PDF and email it back”) and old fashioned solutions (come to my office to scribble some ink on a piece of paper) are natural barriers to significant price increases.

Two is that the existing company doesn’t make that much money:

Now that they are reporting some earnings, investors at this moment suddenly realized “Hey! It’s a long way to get to $21!” and are bailing out.

Now they are trading down to US$27 billion, but this is still very high.

There are all sorts of $10 billion+ market capitalization companies which have featured in this manner (e.g. Peleton, Zillow, Panantir, etc.) which the new investors (virtually anybody buying stock in 2021) are getting taken out and shot.

This is not to say the underlying companies are not any good – indeed, for example, Zoom offers a great product. There are many other instances of this, and I just look at other corporations that I give money to. Costco, for example – they trade at 2023 anticipated earnings of 40 times. Massively expensive, I would never buy their stock, but they have proven to be the most reliable retailer especially during these crazy Covid-19 times.

As the US Fed and the Bank of Canada try to pull back on what is obviously having huge negative economic consequences (QE has finally reached some sort of ceiling before really bad stuff happens), growth anticipation is going to get further scaled back.

As long as the monetary policy winds are turning into headwinds (instead of the huge tailwinds we have been receiving since March 2020), going forward, positive returns are going to be generated by the companies that can actually generate them, as opposed to those that give promises of them. The party times of speculative excess, while they will continue to exist in pockets here and there, are slowly coming to a close.

The super premium companies (e.g. Apple and Microsoft) will continue to give bond-like returns, simply because they are franchise companies that are entrenched and continue to remain dominant and no reason exists why they will not continue to be that way in the immediate future. Apple equity trades at a FY 2023 (09/2023) estimate of 3.8% earnings yield, and Microsoft is slightly richer at 3.2%. Just like how the capital value of long-term bonds trade wildly with changes of yield, if Apple and Microsoft investors suddenly decide that 4.8% and 4.2% are more appropriate risk premiums (an entirely plausible scenario for a whole variety of foreseeable reasons), your investment will be taking a 20% and 25% hit, respectively (rounding to the nearest 5% here).

That’s not a margin of error that I would want to take, but consider for a moment that there are hundreds of billions of dollars of passive capital that are tracking these very expensive equities. You are likely to receive better returns elsewhere.

Take a careful look at your portfolios – if you see anything trading at a very high anticipated price to cash flow expectation, you may wish to consider your overall risk and position accordingly. Companies warranting premium valuations not only need to justify it, but they need to be delivering on the growth trajectory baked into their valuations – just to retain the existing equity value.




Author: Sacha Peter

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