Will California real estate experience the toughest year yet in 2017?

Projected to have lowest housing affordability in six years

KEYWORDS CALIFORNIA CALIFORNIA ASSOCIATION OF REALTORS CALIFORNIA HOUSING CALIFORNIA REAL ESTATE CAR

The trials that plagued the California housing market in 2016 aren’t expected to get too much better in 2017 as the real estate market is projected to face another year of supply shortages and affordability constraints, according to the "2017 California Housing Market Forecast" released by the California Association of Realtors.

CAR predicted that 2016 would face a shortage of available inventory and continued high costs that would limit the state’s improvement, a predication that ultimately came true according to the state’s real estate agents.

Affordability is only projected to get worse, which is currently already California real estate agents' No. 1 concern for the market.

"Next year, California's housing market will be driven by tight housing supplies and the lowest housing affordability in six years,” said CAR President Pat "Ziggy" Zicarelli.

However, he added, "The market will experience regional differences, with more affordable areas, such as the Inland Empire and Central Valley, outperforming the urban coastal centers, where high home prices and a limited availability of homes on the market will hamper sales.”

“As a result, the Southern California and Central Valley regions will see moderate sales increases, while the San Francisco Bay Area will experience a decline as homebuyers migrate to peripheral cities with more affordable options," said Zicarelli.

The CAR predicts existing home sales will modestly increase and rise 1.4% next year to reach 413,000 units, up slightly from the projected 2016 sales figure of 407,300 homes sold. 

Sales in 2016 also will be virtually flat at 407,300 existing, single-family home sales, compared with the 408,800 pace of homes sold in 2015.

Interest rates aren’t estimated to change significantly, with the average 30-year, fixed mortgage interest rates to only rise to 4% in 2017, up from 3.6% in 2016.

Meanwhile, California home prices are forecast to slow down in pace, with the median home price to increase 4.3% to $525,600 in 2017, following a projected 6.2% increase in 2016 to $503,900, representing the slowest rate of price appreciation in six years.

The state’s overall U.S. Gross Domestic Product is projected to grow 2.2% in 2017, after a projected gain of 1.5% in 2016, while California's nonfarm job growth will rise 1.6%, down from a projected 2.3% in 2016.

"With the California economy continuing to outperform the nation, the demand for housing will remain robust even with supply and affordability constraints still very much in evidence. The net result will be California's housing market posting a modest increase in 2017," said CAR Vice President and Chief Economist Leslie Appleton-Young.

"The underlying fundamentals continue to support overall home sales growth, but headwinds, such as global economic uncertainty and deteriorating housing affordability, will temper stronger sales activity," Appleton-Young continued.

Bobby Darvish of Platinum Lending Solutions offers best market rates for Residential & Commercial mortgage in California.

Mortgage Rates Are Plummeting and Here's Why You Should Care as an Investor

Here's your strategy to take advantage of today's dropping interest rates.

Over the past month, mortgage rates have plunged dramatically lower, reaching levels not seen since Nov. 22, 2012, when the conventional 30-year fixed rate hit an all-time low of 3.31%.
For homebuyers and refinancers, this is a welcome change. However, the forces driving rates down today are based on serious concerns about the global economy. Read on to learn why rates are plunging, what could drive them even lower, and how investors should react.
What's happening?
The low rates today have emerged from a much different macroeconomic context than in the aftermath of the financial crisis. In 2012, the Fed was rapidly expanding its balance sheet with purchases of Treasuries and mortgage-backed securities, actively forcing rates lower. Today, the Fed is no longer making those purchases and is instead working to unwind its near-zero interest rate policies put in place following the financial crisis.

U.S. 30-Year Mortgage Rate data by YCharts.

Without the Fed actively pushing rates lower with asset purchases, I think it is unlikely that mortgage rates will fall much farther than they already have. In 2012, the Fed's buying was able to significantly raise prices -- and therefore lower yields. Absent that force pushing the balance of supply and demand, today's near-historic low rates are likely temporary.
The 10-year Treasury yield -- a common harbinger for changes in mortgage rates -- has supported that theory as rates have moved lower. Twice in the last month, the 10-year has approached its lows from 2012 and both times the market has quickly sent its yield back higher. Had the 10-year continue to sink below those 2012 lows, then it would be much more likely that mortgage rates would follow suit.
If it's not the Fed, why are rates dropping again?
If it isn't the Fed tipping the scales of supply and demand, what would it take for rates to drop to a new low? The most likely driver of such a drop would be a global event causing a scare in the markets. In other words, it's market psychology as much as it's hard economics.
If such an event were to occur, the markets would likely price in the chance that central banks would increase or prolong easy-money policies in response to a slowdown. That would push rates lower in the same way as 2012.
What could such an event look like? It could be in the form of a deterioration in the U.S. labor market or GDP. It could be spurred by bad news out of China, much like the market experienced in Aug. 2015 and Jan. 2016. In both of those cases, mortgage rates dropped sharply and immediately as fear rippled through the market.

U.S. 30-Year Mortgage Rate data by YCharts.

Or, more tangibly, it could be sparked by the U.K. referendum to potentially leave the eurozone, scheduled for a vote on June 23. If the U.K. votes to exit, economists predict that rates could fall some more over fears of negative economic repercussions impacting Europe and the U.S.
Here's what investors should expect
To me, the best way to figure out the optimal plan for investors is to understand what happened the last time rates were this low and then determine how today's economics could change the outcome.
In the years immediately following the financial crisis, low interest rates spurred a refinancing boom to the benefit of banks around the country. Leading mortgage lenders like Wells Fargo and Bank of America relied on the fees and loan volume from this surge to offset weaknesses in commercial real estate, legacy mortgage assets, and tumultuous trading in the markets. It also helped to generate the capital needed to pay the billions of dollars in fines and settlements levied for misconduct that led to the crisis.
On the other side of the coin, builders like Toll Brothers (NYSE:TOL) suffered through the refinancing boom, as low rates did little to drive new home sales. Toll Brothers' 2012 annual revenue was about two-thirds below its peak in 2007, a drop of more than $4 billion. The company's revenue has since doubled from that level, but even still remains well below the 2007 highs.
Low rates today should help to spur higher real estate activity and lending as they did in 2012. However, this activity today is based on much more stable overall real estate market. Home purchases are increasingly driving the market, rather than the refinances that characterized the market in 2012. It's no coincidence that home price increases have coincided with the decreased share of refinancing.

U.S. Mortgage Originations, Refinance Share data by YCharts.

For Bank of America, Wells Fargo, and other lenders, this means that today's low rates could be doubly as potent toward their consumer and home loan businesses pushing both purchase money and refinance loans higher at the same time. Driven by its mortgage business, Wells Fargo was the only mega bank to increase its revenues in the first quarter, and Bank of America's consumer banking unit saw its profits jump $324 million, 22.2%, compared to the 2015 first quarter. I think these improvements are just the start if rates stay low or decrease further.
Economic data supports the opportunity. Mortgage applications so far in April are up over 13% compared to the same time in 2015. Housing starts are up 31% over the same period, along with 17.5% and 18.5% jumps in completed homes and under construction homes, respectively.
Toll Brothers is also poised for fundamental improvements, even if the stock market has yet to recognize the potential. The stock is down over 21% in the last 12 months, compared to the S&P 500's 1.2% drop. And yet, Toll Brothers management is predicting 2016 revenue to grow about 25% annually along with solid growth in efficiency and profits.
Bob Toll, the company's executive chairman, told investors on the first-quarter conference call that "the stock market seems to be pricing in a steep decline in the economy, and along with it, our sector. We, on the other hand, are seeing signs that reflect strength and positive momentum in our business based on six consecutive quarters of year-over-year contract growth in both units and dollars." It is, of course, in Toll's self-interest to promote the stock as an investment, but to me, the numbers support his position.
If some unknown event does spur economic problems and spook the market, I think that the market's volatility would be a reasonable buying opportunity for the stock of a lender or builder that stands to benefit from low rates driving new sales in the domestic real estate market in the U.S. The key is to not panic, stay focused on quality companies, and, as always, wait for the market to offer you a chance to buy at a discount.

Fixed mortgage rates hold steady, hovering at three-year lows

By Kathy Orton April 21

(Jason Reed/Reuters)

Mortgage rates were flat this week, continuing to hover at lows not seen in the past three years.
With the markets seemingly waiting for the outcome of the Federal Reserve’s meeting next week, home loan rates have barely budged.
If the Fed indicates it is considering bumping up its benchmark rate again that may push rates higher, but that seems unlikely at this point. Bankrate.com, which puts out a weekly mortgage rate trend index, found that more than two-thirds of the experts it surveyed believe rates will remain relatively unchanged in the coming week.

[Home buyers don’t seem to be using new tool to shop for mortgages]

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average inched up to 3.59 percent with an average 0.6 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.58 percent a week ago and 3.65 percent a year ago. The 30-year fixed rate has hovered between 3.59 percent and 3.58 percent the past three weeks.
The 15-year fixed-rate average edged down to 2.85 percent with an average 0.5 point. It was 2.86 percent a week ago and 2.92 percent a year ago.  The 15-year fixed-rate has fallen 14 basis points in the past five weeks.
The five-year adjustable rate average dropped to 2.81 percent with an average 0.5 point. It was 2.84 percent a week ago, the same as it was a year ago.

[Mortgage applicants may benefit from changes in credit scoring system]

“Volatility in financial markets subsided over the past week, allowing Treasury yields to stabilize,” Sean Becketti, Freddie Mac chief economist, said in a statement.
“As a result, the 30-year mortgage rate was mostly flat, up only 1 basis point to 3.59 percent. The release of March’s existing-home sales report, which shows monthly growth at 5.1 percent, suggests homebuyers are taking advantage of low mortgage rates as the spring homebuying season gets underway.”
Meanwhile, mortgage applications were slightly higher, according to the latest data from the Mortgage Bankers Association.
The market composite index — a measure of total loan application volume — rose 1.3 percent from the previous week. The refinance index increased 3 percent, while the purchase index crept up 1 percent.
The refinance share of mortgage activity accounted for 55.4 percent of all applications.

Mortgage rates hit lows not seen in three years

0-year mortgage rates hit 3-year low

April 14, 2016

Updated 11:30 a.m.

REGISTER GRAPHIC

What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
RATE NEWS SUMMARY
From Freddie Mac’s weekly survey: The 30-year fixed rate improved again, averaging 3.58 percent. Even though that’s just 1 basis point lower than last week’s 3.59 percent, it was the lowest rate since May 2013.
By comparison, the all-time low in Freddie Mac’s records was 3.31 percent reported in November 2012.
The 15-year fixed likewise improved, dropping 2 basis points from last week’s average to 2.86 percent.
BOTTOM LINE: Assuming a borrower gets the average 30-year conforming fixed rate on a $417,000 loan, last year’s rate of 3.67 percent and payment of $1,912 was $21 more than this week’s payment of $1,891.
The Mortgage Bankers Association reports a 10 percent jump in loan application volume from the previous week.
WHAT I SEE: From rate sheets hitting my desk that are not part of Freddie Mac’s survey: Locally, well qualified borrowers can get the following fixed rate mortgages for zero cost: A conventional 10-year loan at 2.875 percent, a 15-year at 3.0 percent, a 20-year at 3.50 percent, a 30-year at 3.625 percent, a high balance ($417,001 to $625,500) conventional 15-year at 3.25 percent, and a high-balance 30-year at 3.875 percent.

Bobby Darvish - Mortgage rates wander upward for third week in a row

Mortgage rates wander upward for third week in a row

 

(Freddie Mac)

Mortgage rates wandered upward for third week in a row prior to the Federal Reserve’s announcement Wednesday that it was leaving its benchmark interest rate unchanged and lowering its economic forecasts.
That news came too late in the week to be factored into the Federal Home Loan Mortgage Corp.’s survey. The government-backed mortgage-backer aggregates current home loan rates weekly from 125 lenders from across the country to come up with a national mortgage average.
With the Fed indicating that it expects to raise rates only two or three times this year, home loan rates are likely to remain low for the foreseeable future. That’s good news for the spring home-buying season.

[Home buyers don’t seem to be using new tool to shop for mortgages]

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average climbed to 3.73 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.68 percent a week ago and 3.78 percent a year ago. The 30-year fixed rate has remained below 4 percent since late December.
The 15-year fixed-rate average rose to 2.99 percent with an average 0.4 point. It was 2.96 percent a week ago and 3.06 percent a year ago. The 15-year fixed rate has stayed under 3 percent since early February.
The five-year adjustable rate average edged up to 2.93 percent with an average 0.5 point. It was 2.92 percent a week ago and 2.97 percent a year ago.
“Treasury yields increased heading into this week’s FOMC meeting, partially in response to modestly higher inflation readings,” Sean Becketti, Freddie Mac chief economist, said in a statement.
“[T]he Fed confirmed what the market had already concluded and made no change to the Federal funds target. The Fed went further and acknowledged that economic signals have been mixed and that the pace of monetary tightening may be slower than had been assumed at the end of 2015.”

[Mortgage applicants may benefit from changes in credit scoring system]

Meanwhile, higher rates pushed mortgage applications down, according to the latest data from the Mortgage Bankers Association.
The market composite index — a measure of total loan application volume – fell 3.3 percent from the previous week. The refinance index dropped 6 percent, while the purchase index inched up 0.3 percent.
The refinance share of mortgage activity accounted for 55 percent of all applications.

Bobby Darvish of Platinum Lending Solutions

Bobby Darvish: Unexpected drop in mortgage rates offers buyers great opportunities

The unexpected sunk of mortgage rates offers buyers the opportunity to get a great deal at a lower cost than before, making sure that this spring becomes a busy season in the housing market.
Average rates on a 30-year fixed rate mortgage have dropped from 4.01 percent, in December, to 3.62 percent on Thursday, putting the figure near to the record-low rate of 3.35 percent in late 2012, according to the weekly survey by mortgage lender Freddie Mac.

Photo: Alamy/The Telegraph UK

Now interested buyers could be able to afford higher-priced homes or just save money from an already found house. Even renters could be persuaded to move up their plans for a purchase at a lower cost.
Lower mortgage rates came after economic experts predicted this year at the end of the record lower mortgage rates due to the Federal Reserve’s move to increase the cost of borrowing across the economy.
The issue that many did not see coming was that the decline in stocks prompted nervous investors to seek safety in government bonds, which drove up prices and kept yields low. Mortgage rates tend to track yields on 10-year Treasury bonds, as reported by Triblive.
Economics warnings led people to act on the forecast that 2016 will begin with higher interest rates. Many decided to take actions before the end of the year so they could save some money, Liljehom, a 38-year-old man from Portland, was one of them.
Liljehom decided to refinance his mortgage in December so he could take previsions due to the highlighted warnings, with only days to spare before the Fed raised rates.

“I could have saved more money if I had waited,” Liljehom said. “My interest rate is still quite low, but it does sting a little knowing it could have been lower.”

Mortgage rates may remain low

Rates are likely to stay low for a while, said Nela Richardson, chief economist for Seattle-based real estate broker Redfin. Global concerns over worldwide economic like a slowdown in China and low commodity prices continue to spook financial markets and may persuade the Fed to hold off on more rate hikes.
The more slowly the central bank removes that support, the more likely mortgage rates are to stay low. Inverstong is betting that the Fed will not raise its benchmark interest rate again when it meets next month. The Fed’s massive stimulus efforts over the past seven years drove mortgage rates to record lows.
The Mortgage Bankers Association lowered this month its forecast for the 30-year-fixed-rate of the year to 4.3 percent, a drop from the 4.6 percent they were expecting in January.

When interest rates go negative

When interest rates go negative

Spencer Platt/Getty Images

February 21, 2016

The smartest insight and analysis, from all perspectives, rounded up from around the web:

Imagine this: "Once upon a time, people actually got paid to lend money,"said Matt O'Brien at The Washington Post. "It was something early humans called 'interest.'" Crazy, right? I kid, of course; getting paid for loaning someone money has been a bedrock financial rule for millennia. But over the past year, a number of the world's central bankers have done "what didn't seem possible before" and turned this age-old idea on its head. Desperate to stimulate economic growth, central banks in Japan, the Eurozone, Denmark, Sweden, and Switzerland — countries that account for nearly a quarter of global GDP — have slashed interest rates to below zero, essentially forcing big financial institutions to pay central banks to hold their money overnight. In economic terms, this is about "one step away from dogs and cats living together." The idea is that the commercial banks won't want to pay to park their excess reserves and will instead be motivated to lend that money to businesses and consumers, which will in turn spur economic growth. But the truth is, sub-zero interest rates are uncharted financial territory. No one really knows what will happen next.

How negative interest rates might affect ordinary consumers is also largely unknown, said Neil Irwin at The New York Times. Right now, negative rates only really govern money that big institutions stash with central banks, but the effects could easily trickle down, in the form of "fees for keeping money" in ordinary savings accounts. And don't think the U.S. is immune from such a "mind-bending" turn of events. Federal Reserve Chair Janet Yellen told Congress last week that while she didn't think pushing rates below zero would be necessary, "she also didn't rule it out." The Fed has also quietly asked major U.S. banks to test what would happen to their finances if rates went negative. Economists, accustomed to treating sub-zero rates as an "intellectual curiosity," are only just beginning to imagine the "weird things" that might start happening. "For example, would people start prepaying years' worth of cable bills to avoid having money tied up in a money-losing bank account?"

It's hard to overstate just how topsy-turvy this "strange new world" is, saidClive Crook at Bloomberg​ View. Years of quantitative easing and low interest rates from central banks were themselves "a journey into the unknown." Now that we're talking about additional adventures, into negative-interest territory, "unforeseen complications" could easily arise. That's why central banks — and the Fed in particular — need to be exceedingly careful in the months to come, said Gillian Tett at Financial Times. Our already jittery markets are getting seriously spooked by all the uncertainty. At a conference I attended last week with some of the "most powerful and savvy asset managers in America," two-thirds of the participants said they now believe the Fed will actually cut interest rates this year, a marked departure from expectations just a few weeks ago. Investors are entering a "bewildering Alice-in-Wonderland world," and we can't "afford to let market imaginations run (any more) wild."

Courtesy of Bobby Darvish of Platinum lending Solutions

Mortgage rates fall amid uncertainty in global markets

Mortgage rates slid for the sixth straight week, driven down nearly to last year’s low by continued uncertainty and volatility in the global financial markets.

Despite the Federal Reserve’s move to raise interest rates, mortgage rates shifted in the opposite direction. That’s because they’re tied to yields in 10-year Treasury bonds, which have plummeted to their lowest level since 2012. With uncertainty in global markets, investors have flocked to the safer 10-year Treasury bonds, which has resulted in lower yields.
According to the latest data released Thursday by Federal Home Loan Mortgage Corp., or Freddie Mac, the 30-year fixed-rate sank to 3.65 percent with an average 0.5 point, the lowest level since April. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 3.72 percent a week ago and 3.69 percent a year ago.
The 15-year fixed-rate average fell to 2.95  percent with an average 0.5 point. It was 3.01 percent a week ago and 2.99 percent a year ago.

[Home buyers don’t seem to be using new tools to shop for mortgages]

The five-year hybrid adjustable mortgage average dipped to 2.83 percent with an average 0.4 point. It was 2.85 percent a week ago and 2.97 percent a year ago.

With mortgage rates falling, a typical family buying a median-priced home now would save approximately $40 a month on their mortgage payment and more than $600 in interest payments on a 30-year fixed-rate mortgage over the course of a year compared with what they would have paid at the start of 2016, according to Freddie Mac.
“The 30-year mortgage rate dropped another 7 basis points this week to 3.65 percent. This week’s drop leaves the mortgage rate just 6 basis points above last year’s low of 3.59 percent,” Sean Becketti, Freddie Mac chief economist, said in a statement.
“In a falling rate environment, mortgage rates often adjust more slowly than capital market rates, and the early-2016 flight-to-quality has run true to form,” Becketti added. “The 30-year mortgage rate has dropped 36 basis points since the start of the year, while the yield on the 10-year Treasury has dropped 59 basis points over the same period.  If Treasury yields were to hold at current levels, mortgage rates might well sink a little further before stabilizing.”
Meanwhile, the lower rates may be spurring more home buyers to take advantage of lower-cost loans. Mortgage applications were up, according to the latest data from the Mortgage Bankers Association.

[Mortgage applications may benefit from changes in credit-scoring system] 

 

The market composite index — a measure of total loan application volume rose 9.3 percent from the previous week. The refinance index jumped 16 percent from the week before, while the purchase index ticked up 0.2 percent.
The refinance portion of mortgage activity accounted for 61.2 percent of total applications, a slight increase from the week before.

Average long-term US mortgage rates fell for the fifth straight week

In this Tuesday, Jan. 26, 2016, photo, a single family home is advertised for sale in Miami. On Thursday, Feb. 4, 2016, Freddie Mac reports on the week’s average U.S. mortgage rates. (AP Photo/Lynne Sladky) 

 

 Average long-term U.S. mortgage rates fell for the fifth straight week amid volatility in world financial markets.Mortgage buyer Freddie Mac says the average rate on a 30-year fixed-rate mortgage slid to 3.72 percent this week, down from 3.79 percent last week and the lowest since it averaged 3.68 percent in April 2015.
The average rate on a 15-year fixed-rate mortgage slid to 3.01 percent from 3.07 percent last week.
Mortgage rates have continued to fall despite the Federal Reserve's decision in December to raise the short-term rate it controls for the first time since 2006.
Global markets have been rattled this year by signs of a global slowdown and big drops in the price of commodities, including oil. Investors have sought refuge in U.S. Treasurys, pushing down long-term U.S. rates.
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn't include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for a 30-year mortgage was unchanged at 0.6 point. The fee for a 15-year loan was also unchanged at 0.5 point.
The average rate on five-year adjustable-rate mortgages fell to 2.85 percent this week from 2.90 percent last week; the fee slid to 0.4 point from 0.5 point last week.

Average US 30-year Mortgage Rate Falls To 4.27 Percent

Inform

Bobby Darvish Robert Darvish Platinum lending Solutions

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.

(Photo: Creatas, Getty Images/Creatas RF)

Story Highlights

• Next Fed policy committee meeting is March 15-March 16. But some say rates won't go up then either.
• Mortgage rates expected to be in the low 4% range for next few months.
• Worries about China and global economy pushing down long term rates.

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.

DETROIT FREE PRESS

Underwater on your mortgage? This program could help

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.

DETROIT FREE PRESS

Mortgage rates not likely to skyrocket after rate hike

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

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.

Mortgage rates retreat over global economic concerns

(Andrew Harrer/Bloomberg)

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.

[What a Fed rate hike could mean to mortgage borrowers]

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.

[New rules for lenders seem to be raising costs for mortgage customers]

“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.

 

“Bolstered by strong fourth quarter growth in jobs and continuing low rates, the results are similar to levels we saw in early December, suggesting that the purchase market’s strong finish to 2015 may be continuing.  While refinances also increased on a holiday-adjusted basis, refinance activity was down 38 percent relative to a year ago when rates dove below 4 percent.”

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.

Related: The Fed Just Raised Rates. Here’s What It Means for Your Money

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.

Effects of Past Interest Rate Increases Offer Guide to Future Risks

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Traders at the Chicago Board Options Exchange on Dec. 16, the day the Fed announced a rate increase of .25 percent. Credit Tannen Maury/European Pressphoto Agency

When expansions end and the economy tips into recession, one or the other is usually to blame.

In the past, the culprit has frequently been fire — an overheating economy and rising inflation — that prompted the central bank to push up interest rates until they ultimately choked off growth. Ice is more unusual, at least in the United States, but often more painful, as excess capacity, weak demand and falling prices foster a deflationary slump that can prove difficult to escape.

As the Federal Reserve embarks on a new chapter in monetary policy, having raised rates on Dec. 16 for the first time in nearly a decade, policy makers are acutely aware of the risks posed by either possibility.

“Raising rates the first time may have been the easy part; now comes the challenging part,” said Mike Ryan, chief investment strategist for UBS Wealth Management Americas.

Fed officials do not have to look far for real-world examples of what can go wrong.

European central bankers raised rates twice in 2011, killing off a nascent recovery and plunging the eurozone into a double-dip recession that it is still struggling to overcome.

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The Chicago Mercantile Exchange in January 2004, before the Fed began a streak of 0.25 percentage point increases later criticized as too incremental.

But being too slow to tighten the reins of monetary policy can prove perilous, too.

A series of steady quarter-point rate increases by the Fed between 2004 and 2006 seemed prudent at the time, but in hindsight the central bank has been blamed for moving too slowly, failing to head off the economic catastrophe that followed the implosion of the housing bubble in 2007.

The biggest problem is that higher interest rates do not bite in predictable ways. Not only do they take time to percolate through the real economy, but there is also a difficult-to-foresee threshold at which the impact can suddenly shift from mild to severe.

“I’m sure there is a tipping point,” Mr. Ryan said. “It’s just hard to know in advance precisely where that is.”

At least for now, though, few analysts expect the Fed’s initial moves to bring the nation’s six-and-a-half-year-old expansion to an abrupt end.

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“The rate hike this month and those next year may not really be felt until 2017,” said Michael Hanson, senior United States economist at Bank of America Merrill Lynch. “Evidence from past cycles suggests it could take a year, rather than the next quarter or two.”

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Why the Fed Raised Interest Rates

Officials said the economy was strong enough to keep growing with a little less help from the central bank. They said rates would rise slowly, but borrowing costs already have started to climb.

OPEN Graphic

The Fed’s task this time is even more complicated because other central banks are leaning in the opposite direction.

With growth in Europe still sputtering, the European Central Bank has belatedly turned to the tools embraced by the Fed several years ago, buying up securities and pumping money into the financial system. But even with some interest rates there in negative territory, Mario Draghi, president of the E.C.B., is under pressure to loosen monetary policy further.

In Asia, the People’s Bank of China is also in easing mode, as officials try to cushion what looks like an increasingly hard landing for the economy there, the world’s second-largest. Similarly, Japan’s central bank is keeping interest rates at rock-bottom levels to encourage growth.

The combination of lower rates abroad and rising ones at home is making the United States dollar surge against other currencies. While that might be good for American tourists heading overseas, it hurts American manufacturers seeking export markets and makes imported goods more competitive, undermining the country’s trade balance.

For now, most economists say the danger of too little inflation outweighs the risk of too much: Ice, in effect, may be more of a worry than fire.

“The risk is skewed toward moving too fast,” said Michael Gapen, chief United States economist at Barclays. “That’s especially true as the strong dollar and lower-priced imports keep inflationary pressures at bay in the United States.”

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A History of Fed Leaders and Interest Rates

The chairwoman of the Federal Reserve has begun the process of raising interest rates, a move that her predecessors have taken in recent decades as they put their own distinctive stamp on the economy.

Although Mr. Gapen, like most seers on Wall Street, is generally upbeat about the economy’s prospects next year, some of his colleagues elsewhere are less sanguine. David Levy, a longtime private economist, is warning clients that the Fed may be forced to reverse course as weakness in China and emerging markets redounds to the United States.

The Fed’s rate increase on Wednesday, Mr. Levy cautioned, “may well mark a high point in economic expectations for 2016.”

In its statement Wednesday about the decision to raise rates, the Fed itself noted there had been a “shortfall” in terms of actual inflation’s not measuring up to the central bank’s 2 percent goal, which it considers helpful in supporting a more robust economy.

Scott Anderson, chief economist at Bank of the West in San Francisco, believes the reference to stubbornly low inflation is significant. “This is new language,” he said. “The doves on monetary policy are saying they will go along with the rate hike now, but want to see some acknowledgment that low inflation is still a concern.”

For his part, Mr. Anderson expects the economy to continue to grow at a moderate annual pace of about 2.4 percent in 2016. If that forecast for growth is correct, he predicts the Fed will raise rates three times next year, lifting the benchmark rate to a range of 1 to 1.25 percent by the end of 2016.

“Consumers are cautious but they still have the capacity to spend,” Mr. Anderson added. “Jobs and incomes are growing, debt levels are low and gas at about $2 a gallon should help. When people realize the sky isn’t falling because the Fed is raising rates, they will go back to their usual spending habits and save the day.”

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What Happens When the Fed Raises Rates, in One Rube Goldberg Machine

Exactly seven years ago, the Federal Reserve cut interest rates to almost zero in order to nurse the ailing economy back to health. Recently it changed direction. This is how it works.

A growth rate of about 2 percent would be in line with the steady, but disappointing, advance that has characterized the current recovery since it began in mid-2009. By contrast, the economy grew by 3.8 percent in 2004 when the last tightening cycle began, and by 4 percent in 1994 when an earlier round of rate hikes got underway.

The comparatively weak recovery, which has left most Americans struggling to maintain their standard of living, is the principal reason the Fed has promised to move more slowly during this tightening cycle than in past ones.

In the mid-2000s, the Fed raised rates by 0.25 percentage point at every meeting between June 2004 and June 2006, 17 straight increases that lifted rates by more than four full percentage points over two years.

The tightening campaign in the 1990s was even steeper, as rates moved up three points in one year. Although that wreaked havoc on the stock and bond markets in 1994, the move may have helped slow growth to a sustainable pace and set the stage for the 1990s expansion to extend for a full decade.

Many analysts say that the current expansion could display that kind of longevity.

“Expansions don’t die of old age,” Mr. Ryan of UBS said, echoing comments by the Fed chairwoman, Janet L. Yellen, at her news conference on Wednesday. “They die from exhausted demand, but consumers aren’t exhausted.”

“And the backdrop of low inflation won’t force the Fed into an aggressive stance,” he predicted. “This expansion can go on for a while.”