While the Federal Reserve Board’s decision this week to hold its interest rates steady does not directly affect mortgage interest rates, the commentary coming out of the Fed Governors’ meeting about the fragile state of the economy pushed mortgage rates lower.
As always, lower rates mean better home affordability. That’s a welcome move given the way tight inventory of Flagstaff homes (and elsewhere) has been driving home prices higher this summer.
Mortgage rates continue to hover around 4% — an amazing bargain if one looks back on the long history of home loan rates. For those willing and able to take on a loan amortized over 15 instead of 30 years, the rate will be more like 3.5%. Yes, those rates are higher than a year ago. But, it’s a lot less than the 8.25% rate I paid for my first home loan or the 6.5% rate folks were paying in 2003. And let’s not even think about the 14% rates offered in the glorious 1980s (when I bought my second home).
The rate itself is only one factor to consider when shopping for a mortgage. If you focus only on that raw rate, you’re going to end up less well off than you could be. Make sure you understand how that rate is set. Is it lower than a quote that you got from another lender because the market ticked down between yesterday and today? Your rate will change daily until you “lock” the rate, which requires that you have a purchase contract in place.
Perhaps the rate your being quoted by one lender is lower because you will be charged points at closing, which buys down the rate. Or, perhaps the rate is lower because the fees are higher. Look closely at the whole package. Soon, we’ll have new financial disclosure rules that will make it easier to look at these comparisons, but still, it’s no first grader’s exercise.
Finally, consider the performance history of your lender. Your real estate agent should be able to help you with this. Some lenders are notorious for not closing on time. If that’s the case, steer clear of them in this competitive market because you could lose the house to a backup offer.
Mortgage rates moved lower again last week, back to levels not seen since May 2013. It’s interesting to consider that the Federal Reserve’s asset purchases have now been fully phased and that a rate hike is a much more immediate threat, yet rates are back to where they were before markets really began adjusting for all that “stuff.” That’s the power of global economic turmoil and a troubling lack of inflation for core economies.
The specific result for home buyers is the greatly increased prevalence of 3.5% as a conforming 30-year fixed quote for top-tier borrowers. 3.625% is “ubiquitously available,” according to Mortgage News Daily. Keep in mind that these rates refer to the most qualified borrowers with 25% equity or more, and high credit scores among other things. The 3.5% rate, in other words, is a baseline and your actual rate will depend on your situation. The important part is the day-over-day change and the relationship to recent levels. No matter what you were quoted in the past few weeks, if your scenario is the same, today’s rates are better.
In terms of how to approach this rate environment, the key is to recognize that the current rate scenario CAN end any time. One common strategy for those that want to keep floating in the hopes of further gains would be to set a limit at slightly higher rates than today’s quote and keep floating until that limit is reached. For instance, if you’re being quoted 3.5% today, you could plan to lock if your rate rose to 3.625%. It’s the same concept as a “stop-loss” employed by investors. Whatever you do, be sure to coordinate on your strategy with your mortgage originator.
Of course, you need to be under contract to purchase a home to lock your mortgage rate. So, grab the brass ring and get in touch with The Elite Team at RE/MAX Peak Properties. We’re eager to help you buy your Flagstaff home.
Mortgage rates are most closely correlated with the 10-year U.S. Treasury bond rate. Most experts have predicted mortgage rates and Treasuries would go up in the 2d half of 2015. Now they are beginning to rethink that in light of disturbing economic trends.
This is a time when a little inflation might be a good thing – but it’s not materializing.
For years, a large number of home owners were prevented from moving up because of negative equity. These “underwater” homeowners were locked in to their current home by rock-bottom real estate values. Now that the market has improved, some see a new problem: Homeowners who have refinanced in recent years don’t want to give up their rock-bottom interest rates. Economists, who always seem to find something to worry about, are worrying that this group will be reluctant to move now that interest rates are heading back up.
Researchers at the Institute of Housing Studies at DePaul University in Chicago say that interest rate lock-in may be more of an impediment to housing turnover than equity lock-in (those who can’t sell because they’re underwater). Their study, published in February, used the Chicago metro area as a test case to predict what rising home prices and interest rates will mean for housing turnover. The study assumed a 1% interest rate increase each year over a three-year period. They found that the number of households freed from equity lock-in by increasing home prices will not offset the number of home owners who are increasingly being locked in by low interest rates. At the end of the three-year period, the turnover rate in strong markets had decreased by 75%. The effect in weaker markets was slightly less extreme, but similar.
National Association of REALTORS® Chief Economist Lawrence Yun predicts that interest rates will follow that pattern over the next three years, increasing from current levels (around 4.2%) to nearly 5% by early next year. He says they will probably rise until they reach 6%, then stabilize there. Historically, 6% interest isn’t deadly, but a home owner paying about half that may take rates into account when deciding whether or not to move.
It’s hard to know exactly how this will unfold on the national arena. One CoreLogic executive recently estimated that up to 3.6 million home owners will be reluctant to sell this year because of rate lock-in. That will keep inventories low and home prices higher than they otherwise would be.
Looking back to other lock-in events can provide insight to what home owners might do in the face of interest rate lock-in. Historically, there has been “a substantial amount of renovation of houses” as home owners seek to put off moving. Among other options is keeping the home as a rental property – that’s a great option in Flagstaff where the rental prices are high.
Ultimately, selling a home and moving to a smaller or larger one, or one in a different city, is most dependent on the homeowners’ housing needs. Interest rates will play a role, but in most cases not a determining one.
That’s sure what it feels like in the Flagstaff home sales market. And that’s how Chief Economist Frank Nothaft described “most markets” across the county in Freddie Mac’s June 25 press release.
Meanwhile, mortgage rates are at their lowest point in the year. That should help encourage some home buyers sitting on the edge. Also, we’ve got a somewhat better (but only slightly better) selection of homes for them. Many would-be buyers in Flagstaff are suffering from sticker shock as well as disappointment in the selections that face them.
The average rate for a 30-year fixed-rate mortgage fell to 4.32% in the week that ended Jan. 30, hitting the lowest level since late November; down from 4.39% in the prior week, according to a Thursday report from federally-controlled mortgage buyer. The rate fell as other recent housing-market data signaled softening sales and prices. The average rate for the 15-year fixed-rate mortgage fell to 3.40% in the latest week from 3.44% in the prior week.
While you have been enjoying the holiday season, mortgage rates have been climbing
The average rate for a 30-year fixed rate mortgage climbed nearly 40 basis points, from 4.1% to 4.53%, from the beginning of November through the first week in January. Rates are roughly at the same level as in August. Rates are likely to rise through the spring as the Federal Reserve tappers its purchases of mortgage backed securities and Treasuries.
Mortgage applications fell in four of the last six weeks, which experts see as caused by the steady rise in mortgage rates. The National Association of Realtors® expresses concern that higher rates make homes less affordable for an increasing share of the population. I would remind my clients that homes have historically sold when mortgage rates were 8%-16% and we’re quite a ways from that level. Also, home purchases were strong in the fall even though rates were at this level in August when those buyers were making their loan applications.
Some are concerned about the divergence between mortgage applications and the 30-year home loan interest rate. Yes, it’s Econ 101.
If you missed the boat earlier, now may be the time refinance.
It’s the old story, what’s good news for the economy is not good for interest rates and what’s bad news for the economy is good for rates. The American economy has taken a few blows in the last few weeks from the government shutdown and the repercussions from that are not likely to be soon go away.
So, the good news for housing is that interest rates are down to the low 4% range instead of the high fours, where they were hovering a few weeks ago.
Housing analysts say the market has done just fine under harsher conditions.
Mortgage rates have shot up to a two-year high, but don’t be too quick to assume this will scare away home buyers. Once in the 1980s, I bought a house with a mortgage rate over 14%. If now is the time to buy, people will buy. Not that the market wouldn’t be impaired if we were at 14%, but at 4.5%, I doubt it. The bigger issue is employment.