The Main Reason Mortgage Rates Are So High in Palm Beach County

Today’s mortgage rates are of utmost concern for many homebuyers in Palm Beach County, Florida. If you’re contemplating purchasing a home for the first time or selling your current house to move into a more suitable dwelling, you may be wondering:

Why Are Mortgage Rates So High?

When Will Rates Go Back Down?

To address these questions, it’s crucial to understand the underlying context. Here’s the information you need to gain a better understanding.

1. Why Are Mortgage Rates So High?

The 30-year fixed-rate mortgage in Palm Beach County is heavily influenced by the supply and demand for mortgage-backed securities (MBS). According to Investopedia:

“Mortgage-backed securities (MBS) are investment products similar to bonds. Each MBS consists of a bundle of home loans and other real estate debt bought from the banks that issued them… The investor who buys mortgage-backed security is essentially lending money to homebuyers.”

The demand for MBS plays a vital role in determining the spread between the 10-Year Treasury Yield and the 30-year fixed mortgage rate. Historically, the average spread between the two has been 1.72 (see chart below):

As of last Friday morning, the mortgage rate in Palm Beach County was 6.85%. This indicates a spread of 3.2%, which is nearly 1.5% higher than the norm. If the spread were at its historical average, mortgage rates would be around 5.37% (3.65% 10-Year Treasury Yield + 1.72 spread).

This significant spread deviation is highly unusual. As George Ratiu, Chief Economist at Keeping Current Matters (KCM), explains:

“The only times the spread approached or exceeded 300 basis points were during periods of high inflation or economic volatility, like those seen in the early 1980s or the Great Financial Crisis of 2008-09.”

The graph below provides historical data that helps illustrate this point by showcasing the few instances when the spread increased to 300 basis points or more:

The graph demonstrates how the spread has diminished after each peak. The positive news is that there is room for mortgage rates to improve in Palm Beach County.

So, what is causing the larger spread and contributing to the high mortgage rates today?

The demand for MBS is heavily influenced by the risks associated with investing in them. Currently, this risk is influenced by broader market conditions such as inflation concerns, the fear of a potential recession, the Federal Reserve’s interest rate hikes aimed at curbing inflation, negative narratives about home prices portrayed in headlines, and other factors.

In simple terms, when there is less risk, the demand for MBS is high, leading to lower mortgage rates. Conversely, when there is more risk associated with MBS, demand decreases, resulting in higher mortgage rates. Currently, the demand for MBS is low, contributing to the high mortgage rates in Palm Beach County.

2. When Will Rates Go Back Down?

Odeta Kushi, Deputy Chief Economist at First American, provides insights into this question in a recent blog:

“It’s reasonable to assume that the spread and, therefore, mortgage rates will retreat in the second half of the year if the Federal Reserve eases its monetary tightening measures and provides investors with more certainty. However, it’s unlikely that the spread will return to its historical average of 170 basis points, as some risks are here to stay.”

The bottom line, is the spread between the 10-Year Treasury Yield and mortgage rates in Palm Beach County will shrink as investor fear subsides. This means that mortgage rates should moderate as the year progresses. However, predicting mortgage rates with absolute certainty is challenging, as numerous factors can influence their trajectory.

If you have questions about mortgage rates or are looking to navigate the real estate market in Palm Beach County, it’s crucial to connect with a knowledgeable real estate professional who can provide personalized guidance and keep you informed about the local market conditions. Understanding the dynamics of mortgage rates empowers you to make informed decisions as you pursue your home-buying goals.