What's Up with Rates?

It appears that mortgage rates are settling down, but there's a notable break between traditional 30-yr. fixed loans and jumbos, which are most common in MB.

One month ago, in "Rates Spiking Again?," we took note of a recent uptick in 30-yr. fixed loan rates, and noted the fears of one local realtor that the rate increases could continue.

Today's headlines include "Mortgage Rates Fall, 1st Time Since February" (via CNN Money). However, as the first graph here shows (via Bankrate.com) – on a short, 3-month time scale – jumbos are remaining stuck in the lofty territory of late February. (Note: We created these graphs using Bankrate's free tool.)

The second graph shows two jumbo products. The green line is the same 30-yr. fixed as in the first graph, while the blue line is a 5/1 ARM with interest-only payments. The ARM rates seem to have risen significantly from the late-February peak.

Of course, these graphs provide only an illusion of hard data. The data are drawn from lots of sources and there is a lot of variation by region and by lender.

We also have yet to see the effect of higher conforming-loan limits (about $730k) working through the system – redefining what a "jumbo" loan is. Finally, knowing what rates are generally doesn't tell you whether there are willing lenders and whether buyers can meet increasingly rigid criteria.

We're curious what buyers and pros are experiencing right now in the local market.

Affordability and Prices at Higher Rates

Let's open this one up for discussion, since there are plenty of readers here far more savvy in the ways of finance than your humble correspondent.

MBC was wondering something... if rates are up to stay (debatable!), how much might prices adjust to allow buyers to "turn back the clock" to earlier this year?

We made these assumptions and fed them into a mortgage-rate Univac online...

Home price: $2.0m
Down (20%): $400k
1st TD: $1.600m

The computer spat back:

30y fixed payments at...

6.5%: $10,118
7.5%: $11,187 (+$1,074)
8.5%: $12,303 (+$2,190)

Then we wondered, if a buyer has missed out on the chance at 6.5% rates, but still wants to pay right around $10k/mo. on the 1st, how much can that buyer now afford?

At 7.5%, the loan amt. for the 1st should be: $1.450m (-$150k)
At 8.5%, the 1st should be: $1.325m (-$275k)

So here, the buyer goes shopping for less-expensive homes, or the higher-priced homes drop 7-14% to keep the interest of the priced-out buyers.

This may be premature to consider, but what does prior experience suggest? Reactions to these assumptions or figures?