Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates.
Mortgage rates and other long-term interest rates are bound to rise measurably in the second half of this year, if not earlier. The Federal Reserve has been aggressive in buying U.S. government bonds as part of Quantitative Easing and has tried to hold down the long-term rates with Operation Twist. But both measures will soon be coming to an end. Furthermore, there will inevitably be a reversal of these policies at some point, which means the Federal Reserve will be selling back the bonds it had already purchased and sitting on the balance sheet, probably at the same time the U.S. government will continue to sell its bonds to cover the deficit spending. That means someone has to buy the flood of U.S. government bonds. If there is a lack of investors, then higher interest rates will be required to induce buyers to step forward. Higher offered interest rates also mean higher mortgage rates as well.
The FHA made an important change to its refinance program Tuesday, March 6th.[1] The FHA lowered the premiums on refinances for some homeowners who originally purchased with an FHA loan. However, the FHA put certain limitations on this opportunity, limitations that may prevent a substantial group of homeowners from taking advantage of today’s low rates.
Mortgage rates will be starting to rise from this week on. From the 3.9 to 4.0 percent average rate in the past five months on a 30-year fixed mortgage, the new rates will soon be in the range of 4.3 to 4.6 percent. Usually the initial phase of rising rates can quicken the decision to sign on the dotted line as consumers do not want to face even higher mortgage rates later on. However, a prolonged increase will shrink the pool of eligible home buyers.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates.
Everyone is aware that right now we’re seeing the lowest mortgage rates in a generation or two. Everyone is probably also mindful of the bargain prices. Due to inflation over time, people’s income generally rises over time, though the average family income stopped growing in 2009. So how do these facts add up in relation to the budget devoted to housing payments for recent buyers? Well, a typical family with middle income would be devoting less than 15% of their pre-tax income on mortgage payments to buy a typical home in the U.S. Furthermore, a family buying a home today would lock-in a fixed monthly payment for the long haul if taking out a 30-year fixed rate mortgage. Prices of just about everything can be expected to rise, along with income, but not mortgage payments. It is no wonder why homebuyers of the past 2-3 years have been some of the most successful, with extremely low default rates.
Mortgage rates across the board are at historic lows. Everything, from 1-year adjustable rates to 30-year fixed rates, is lower now than it ever has been in most people’s experience.
However, there are gaps to consider. The 15-year mortgage is at 3.2 percent while the 30-year can be obtained at 3.9 percent, a difference of 70 basis points. The 5-year hybrid ARM is 2.8 percent. The 1-year ARM is of no value since it is also being quoted at 2.8 percent. These rates are based on a Freddie Mac survey of lenders.
Past housing cycles were heavily influenced by changes in mortgage rates. The cycles, both up and down, were generally also abrupt. However, not this time around. The historically low mortgage rates have not turbocharged home sales. At best, there has been a slight recovery and only in the most recent few months.
Each day the Research staff takes a look at recently released economic indicators, addressing what these indicators mean for REALTORS® and their clients. Today’s update highlights mortgage rates.
The French Election & US Mortgage Rates
With a win by the socialist party in France’s presidential election, bond investors will be shifting money into U.S., U.K. and Germany. That means lower mortgage rates, at least temporarily, for U.S. consumers.
The 10-year borrowing rate for German bonds fell and now stands at 1.58%. By contrast, the French government has to pay a 2.78% interest rate. The comparable U.S. and U.K. borrowing rates are 1.86% and 2.00%, respectively.
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