Why do La Jolla, CA home buyers keep watching the riots in Greece?
Once again Greece threatened default on its soveriegn deb. This sent shockwaves through the world financial markets. This time around, the European Union was offering less solidarity and more austerity to its little peninsular cousin. Capital fled European markets and into American treasury bonds during the middle of June. This drove bond yields down which caused jumbo mortgage rates to decline to their lowest levels since 2004.
Last Monday, we locked a $500,000 loan, at 4.75% (30 year fixed), with no fees or discount points. We locked a $1.1 million loan at 5.125% (30 year fixed), with no fees or discount points. Today, those same loans would be more expensive by a discount point (1% of the loan amount). This means that the first buyer would have to bring an extra $5,000 to closing today, and the second buyer would have to bring $11,000 to closing today , just to get the same rates.
Why are jumbo mortgage loans so much more expensive today than they were last Monday? Greece struck a deal with the European Union to get emergency loans. That action reassured golbal financial markets that a Greece default would be stayed. Money flowed into equities and out of the safe haven of US Government securities. Mortgage bond investors demanded higher yields from mortgage originators which was passed onto the retial borrower.
In which direction will jumbo mortgage rates head this summer? I believe rates will be stable through Labor Day with some erratic movements upwards. The federal Reserve bank has halted its quantitative easing plan. While this should pressure jumbo mortgage rates higher, Greece is but the first of many sovereign default crises bubbling beneath the surface of a calm Mediterranean Sea. I expect those threats of crises will hold the upwards pressure in check.
If you can, lock a jumbo mortgage rate under 5%. If higher than 5% is offered, you might pause to read what's happening in Europe. Anothe ron of these crises could afford you that rate under 5%.