Sunday, January 24, 2016

Mortgage rates defy prediction: Is now a good time to buy a home?

By Gail Marksjarvis Chicago Tribune
When the Federal Reserve raised interest rates in December, people who had been flirting with buying a home worried they might have waited too long. But worries about rising mortgage rates have been unwarranted. Since the Fed's rate increase, rates on 30-year mortgages have dropped below 4 percent, and many mortgage experts expect them to stay below 4.25 percent this year.
"If the stock market drops another 300 to 400 points some day, mortgage rates might go down another eighth of a percent," said Ken Perlmutter, president of Perl Mortgage of Chicago. He thinks the dip will be short-lived, and rates are about as low as they will go. He's not expecting a return to the 3.5 percent that happened while the U.S. economy was recovering from the 2008 recession, but he's also not anticipating much increase.
Lately, concerns about the global economy and the plunge in the stock market have driven rates on 30-year mortgages below 3.8 percent nationally, said Zillow economist Svenja Gudell. That's about a quarter of a percent under where they were when the Federal Reserve raised interest rates and analysts were warning homebuyers that rising mortgage rates were likely.
The recent drop in rates "surprised a lot of people," said James Bianco, president of Bianco Research. "People expected rates to be up, not down" after the Federal Reserve raised the federal funds rate. Instead, economic data on a slowing global economy has crimped expectations on the U.S. economy and interest rates.

"Nobody thinks inflation is a risk," and rising inflation would prompt interest rates, like mortgages, to rise, Bianco said. Instead, the growing view is that instead of responding to a surge in the economy, the Federal Reserve was simply tweaking rates upward because they'd been ultra-low since the 2008 recession, Bianco said.

"I think the Fed wants to get out of the market manipulation game," he said.
The Fed doesn't control mortgage rates directly, although its view of growth and inflation is an influence. Mortgage rates respond to the outlook for the economy, and particularly the outlook reflected in yields on 10-year Treasury bonds.

When investors get nervous about the economy or the stock market, they pull money out of stocks and put it into bonds. With bonds popular, yields on the bonds dip. That's what happened after the Fed acted in mid-December. The Dow Jones industrial average lost more than 1,000 points —one of the sharpest moves in history for the early part of the year. Mortgage rates took their cue from the bond yields and fell too.

Perlmutter told a client who needs to close on a large mortgage in February that waiting a little while before locking in a rate might save him an eighth of a percent if investors get panicky about the stock market again. "But it's a risk," he said. "It could go the other way."
Fannie Mae economist Mark Palim is estimating a gradual increase in 30-year mortgage rates to 4.2 percent by the end of 2016 —a modest increase that goes along with modest growth in the economy. Fannie Mae economists recently lowered their expectation of GDP growth to just 2.2 percent after previously estimating 2.4 percent.

"The concern is the impact of international markets," he said. "That's been the pattern of the last few years."
When investors worried about a European debt crisis, a Greek debt crisis or China's stock market and economy, U.S. stocks dropped as people yanked their money out of the stock market and tucked it into U.S. Treasury bonds for safekeeping, he said. As the money flowed into bonds, the yields on them dropped, and mortgage rates did too.
Still, Palim and many analysts say the trend in rates is likely to be up, but up gradually while the global economy remains lackluster.

While that takes the pressure off potential homebuyers to make a quick move, PNC Bank economist Stuart Hoffman said people with adjustable-rate mortgages might find it worthwhile to convert to fixed-rate mortgages if their existing mortgages will start getting adjustments this year. A May adjustment could be up a half or three-quarters of a percent, he said.

Sunday, January 17, 2016

Mortgage rates retreat over global economic concerns

Mortgage rates retreat over global economic concerns

Mortgage rates retreated for the second week in a row, according to the latest data released Thursday by Freddie Mac.
Concern over the global economy is fueling volatility in the financial markets and pushing down rates on home loans. The 10-year Treasury yield closed at a two-month low on Wednesday. The movement of the 10-year Treasury bond is one of the best indicators whether mortgage rates will rise or fall. When yields go down, interest rates tend to go down.
The 30-year fixed-rate average dropped to 3.92 percent with an average 0.6 point, its lowest level since early November. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.97 percent a week ago and 3.66 percent a year ago.
The 15-year fixed-rate average fell to 3.19 percent with an average 0.5 point. It was 3.26 percent a week ago and 2.98 percent a year ago.
The five-year hybrid adjustable rate average sank to 3.01 percent with an average 0.4 point. It was 3.09 percent a week ago and 2.9 percent a year ago.
“Long-term Treasury yields continue to drop, dragging mortgage rates down with them,” Sean Becketti, Freddie Mac chief economist, said in a statement.
“Turbulence in overseas financial markets is generating a flight-to-quality which benefits U.S. Treasury securities. In addition, sagging oil prices are capping inflation expectations.”
Meanwhile, mortgage applications rebounded from their holiday slump, according to the latest data from the Mortgage Bankers Association.
The market composite index — a measure of total loan application volume – soared 21.3 percent from the previous week. The refinance grew 24 percent, while the purchase index increased 18 percent.
The refinance share of mortgage activity accounted for 55.8 percent of all applications.
“MBA’s purchase mortgage application index reached its second highest level since May 2010 on a seasonally adjusted basis last week, second only to the week prior to the implementation of the Know Before You Owe rules,” Lynn Fisher, MBA’s vice president of research and economics, said in a statement.

Sunday, January 10, 2016

Lock in now! Stock sell-off sinks mortgage rates

You may be losing your shirt in the stock market this week, but you could get a leg up on your home loan. As investors flee stocks, they are heading to bonds, and as a result, mortgage interest rates are falling. Mortgage rates ended 2015 at their highest level in nearly six months, but have since dropped precipitously.
"Bond markets continue defying the odds so far in 2016," wrote Matthew Graham, chief operating officer of Mortgage News Daily.
Falling mortgage rates
Olena Timashova | Getty Images
When stocks sell off, investors historically head to the bond market because it is considered a safer investment. Higher demand means lower yields. Lenders price according to the yields on mortgage-backed bonds, which generally follow the 10-year Treasury.

Mortgage rates do not follow the Federal Reserve funds rate, but most expected that as the Fed raised rates, mortgage rates would rise as well. This has more to do with an improving economy, which would be behind both.

"Given the Fed rate hike and strong ADP data yesterday — among other reasonably decent economic anecdotes — we would be more justified in expecting bonds to be under pressure at the start of the year," added Graham, calling the drop in rates, "a pleasant surprise."

The average rate on the popular 30-year fixed mortgage is now just below 4 percent for the most credit-worthy borrowers. Applications to refinance a loan had dropped dramatically in the last two weeks of 2015 amid higher interest rates, but this move lower could create a new opportunity for thousands of borrowers who have yet to refinance at a lower rate.
There are not many regular borrowers who would benefit from the current rates, given the refinance boom of the last three years, when rates were hovering around record lows. There are, however, nearly 430,000 borrowers who could still benefit from the government's HARP refinance program, according to the Federal Housing Finance Agency. This is for borrowers who still owe more on their mortgages than their homes are worth, commonly known as "underwater." Their loans must be government-backed. Why so many still?
"They may be in a good financial position, able to make their monthly payments and don't want to mess with it," said Andrew Wilson, Fannie Mae's chief spokesman. "There are always some number of people that just never do, and the question is why not?"

These borrowers are leaving money on the table. They could also refinance into shorter term loans, paying off principal more quickly. Even if rates don't move much lower, refinancers could benefit from a slow easing in the credit markets.

"That would open refinancing up to homeowners shut out of the mortgage market over the past few years because of their credit scores, debt-to-income ratios, income, assets or lack of equity," said Guy Cecala, CEO and publisher of Inside Mortgage Finance. "An improving economy and rising home prices could open up re-fi's to borrowers with higher rate mortgages who have been forced to the sidelines for several years."

Saturday, January 2, 2016

Mortgage Rates Edge Higher, Signaling What’s to Come in 2016

Mortgage Rates Edge Higher, Signaling What’s to Come in 2016

The rate on the most common mortgage ended the year higher than in 2014, only the third time the rate has increased year-over-year in the past decade. The trend of higher rates is expected to continue into next year, putting pressure on would-be buyers to make a move sooner rather than later.
The 30-year fixed rate rose to 4.01 percent this week from 3.96 percent last week, according to Freddie Mac’s weekly survey. That’s also up from 3.87 percent in the last week of December 2014.
The rate has ended the year higher only two other times in the last 10 years. In 2013, it increased to 4.48 percent from 3.35 percent the previous year, and in 2009 it edged up to 5.14 percent from 5.1 percent. In the other eight years, the rate fell year-over-year.
The increase comes after the Federal Reserve two weeks ago upped a key benchmark rate for the first time in almost a decade. The federal funds rate had been held close to zero since December 2008. Economists and investors expect the Fed to gradually increase rates over the next year, with expectations of four hikes of a quarter point each in 2016.

There are divergent views on how much this will affect mortgage rates. Fannie Mae forecasts the 30-year rate will end 2016 slightly higher at 4.1 percent, while the Mortgage Bankers Association predicts a significantly higher rate of 4.8 percent. Both had expected to close out this year at 3.9 percent.
The difference in those forecasts means a lot of cash for homebuyers. Someone with a $200,000 mortgage (and 20-percent down payment) at 4.1 percent would pay $966 per month and $147,903 in interest over the life of the loan. At 4.8 percent, the monthly payment increases to $1,049 and the borrower will pay almost $30,000 more in interest.
That means 2016 is the year to move quickly rather than sitting on the home-buying sidelines, hoping for an unlikely decline in mortgage rates.