Monday, February 1, 2016

Where are mortgage rates heading? Not necessarily up

Mortgage rates aren't likely to spike in the months ahead, according to economists, and that could be good news for those planning to shop for a home in the spring.

All eyes will continue to be on the Fed going into spring, but economists say home buyers are still likely to see some very attractive mortgage rates for a while. Say the 4% range for a 30-year fixed?
The Federal Reserve's policy committee proved last week that we're not looking at NASCAR-like speeds for the next round of rate hikes here.
On Dec. 16, the Fed moved to lift short-term interest rates for the first time in nine years. The target range for the short-term federal funds rate was set at 0.25% to 0.5% — up slightly from near 0% levels.
But as expected last week, the Fed held steady and didn't touch rates at the first meeting of 2016. Maybe the Fed will raise rates at its next two-day meeting March 15 and March 16. But maybe not.
Another two-day meeting follows April 26-April 27. Maybe another rate hike then; maybe not.
The Fed's official word last week was that we could be looking at "only gradual increases in the federal funds rate" ahead. "Inflation is expected to remain low in the near term, in part because of the further declines in energy prices," according to the Federal Open Market Committee statement on Wednesday.
Oddly enough, mortgage rates have been sliding downward in recent weeks, in part  because of the rough patches with economic woes in China, falling oil prices and tumbling stock prices on Wall Street. And many experts aren't forecasting big jumps in mortgage rates by spring.
Robert A. Dye, chief economist for Dallas-based Comerica Bank, said he's forecasting that mortgage rates will remain flat, holding at current levels, over the next couple of months.
Two factors are keeping mortgage rates in check: The Federal Reserve is not expected to raise short-term rates until April or perhaps later, Dye said. And the volatility in global financial markets is putting downward pressure on rates, as well.
As markets are uncertain, investors turn to long-term Treasury bonds as a safe haven. When demand goes up for Treasuries, the price of the bonds goes up but the yields on the bonds fall. For home buyers, the flight to safety in the bond market means that mortgage rates remain low.
Bob Walters, chief economist for Detroit-based Quicken Loans, said he would expect mortgage rates to remain low through the spring, as well.
"The global economy is facing some significant headwinds. Inflation is non-existent. Those realities hold longer term interest rates down," Walters said.
"I think the Fed will stand down and not raise short-term interest rates again until later this year — and only if some of the global economic challenges ease," Walters said.
Walters noted that Michigan has enjoyed significant home price gains in the last year or so and demand is markedly up. The outlook would continue to be good, he said, if rates remain low as expected.
Greg McBride, chief financial analyst for Bankrate.com, said he'd expect the 30-year rate to hopscotch back and forth around 4.1% to 4.2% for a while — which is not all that far from the record low of 3.52% in May 2013.
His advice to home buyers and those still wanting to refinance: "Don't worry about mortgage rates."
What's more essential for home buyers: Make sure to shore up your credit by paying bills on time. Do not open up more credit cards or take on a big car loan right before you want to shop for a mortgage. Don't stretch too far. Check your credit report. Take time to consider what kind of money you have for a down payment and shop around for the right house and right mortgage for you. Lenders often want to see two years worth of available tax returns, so it helps to have held a job for two years or more.
McBride noted that the average 30-year mortgage rate was 3.94% recently, compared with 3.8% a year ago.
The backdrop of low inflation and uneven economic growth, McBride said, will limit the Fed's ability to move quickly and raise rates.
Keith Gumbinger, vice president for HSH.com, a mortgage information website, said it is looking more and more as if the Fed won't be raising rates four times in 2016.
"If the economy is slowing — or certainly not accelerating — it does suggest that the Fed probably won't be raising rates four times this year," Gumbinger said. "We might not even see the first interest rate increase until perhaps June."
Gumbinger said right now he expects that the 30-year fixed rate mortgage could peak around 4.625% by year end.
Many experts, he said, are surprised that rates remained as low as they have for this year, as some had expected mortgage rates to be closer to 4.5% by now.
Mark Zandi, chief economist with Moody's Analytics, noted that 30-year mortgage rates are now roughly around where they were this time last year. But mortgage rates did rise to more than 4% briefly last summer.
"The Fed move in December had no impact on mortgage rates, as long-term rates do not react," Zandi said.
"Bond investors don’t believe the Fed will be able to raise rates much this year.  There is also significant demand for the safety of U.S. Treasury and mortgage bonds given the turmoil in financial markets."
Zandi said he would expect mortgage rates to hover between 3.75% and 4.25% during the next three months to six months before edging somewhat higher by year's end.
"Home sales and housing construction should continue to increase given the improving job market, low mortgage rates, and steadily improving mortgage credit availability," Zandi said.
Most areas across the country — except the oil patch areas, which are hard hit by job losses — should see improvement in the housing market, Zandi said. Tougher housing markets are likely to continue in Texas, Louisiana, Oklahoma, Wyoming and North Dakota.
Interest rate forecasts, of course, are subject to change. The Fed has noted that the actual path of the federal funds rate will depend on the economic outlook based on the latest data. The Fed sees the declines in energy prices as "transitory." Right now, though, it looks like low mortgage rates have a few more laps to go.

Robert Bobby Darvish of Platinum lending Solutions

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