Robert Bobby Darvish of Platinum Lending Solutions have been providing residential & commercial mortgage services for over 20 years across Orange County Southern California. We're able to assist you in all financing needs, to purchase, refinance or construct variety of projects.
After two weeks of spikes, mortgage rates retreated this week, falling back to where they had hovered most of the summer.
With
long-term bonds trading in a narrow band, home loan rates likely have
settled in ahead of the Federal Reserve meeting next week. While most
observers do not expect the Fed to raise rates in November, they are
anticipating a rate hike in December.
At the same time, the
financial markets appear reluctant to make any moves ahead of the
presidential election, which means mortgage rates are likely to hold
steady at least until after Nov. 8.
Bankrate.com,
which puts out a weekly mortgage rate trend index, found that 80
percent of the experts it surveyed believe rates will remain unchanged
in the coming week, moving less and plus or minus two basis points. (A
basis point is 0.01 percentage point.)
According
to the latest data released Thursday by Freddie Mac, the 30-year
fixed-rate average tumbled to 3.47 percent with an average 0.6 point.
(Points are fees paid to a lender equal to 1 percent of the loan
amount.) It was 3.52 percent a week ago and 3.76 percent a year ago. The
30-year fixed rate, which had jumped 10 basis points in two weeks,
dropped back below 3.5 percent, where it has spent all but two weeks of
the past four months.
The 15-year fixed-rate average slipped to
2.78 percent with an average 0.5 point. It was 2.79 percent a week ago
and 2.98 percent a year ago.
The five-year adjustable rate
average inched down to 2.84 percent with an average 0.4 point. It was
2.85 percent a week ago and 2.89 percent a year ago.
“Mortgage
rates continue to be relatively stable and at near record lows,” Sean
Becketti, Freddie Mac chief economist, said in a statement. “The 30-year
fixed-rate mortgage fell 5 basis points week-over-week to 3.47 percent,
erasing last week’s increase. At the same time, the 10-year Treasury
yield ended the week relatively flat – up about 2 basis points.”
Meanwhile, mortgage applications declined this week, according to the latest data from the Mortgage Bankers Association.
The
market composite index — a measure of total loan application volume —
fell 4.1 percent from the previous week. The refinance index fell 2
percent, while the purchase index decreased 7 percent.
The refinance share of mortgage activity accounted for 62.7 percent of all applications.
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 that2016 would facea shortage of available inventory and continued high costs that would limit the state’s improvement, a predication that ultimately came true according to thestate’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.
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.
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.
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.
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.
Sure, everyone agrees that the Federal Reserve will raise interest
rates in the U.S. only gradually. But maybe not quite as gradually as
traders are betting.
Federal funds rate futures that indicate the central bank will boost
rates just once this year and next year appear "unduly pessimistic,"
Boston Federal Reserve Bank President Eric Rosengren, a voting member of
the monetary policy committee, said in a speech Monday. "I personally
expect that a stronger economy, at essentially full employment and with
gradually rising inflation, will lead to more tightening."
Committee members had indicated in December that they might raise
rates as many as four times this year after boosting them by 25 basis
points for the first time since they were slashed to nearly zero during
the 2008 financial crisis. Gyrations in global financial markets during
January and February, however, coupled with a slowdown in China and
tumbling oil prices, derailed that plan. At one point, markets were
pricing in no increases at all in 2016.
Oil prices began rebounding from a low around $26 a barrel in March, though, and U.S. economic indicators
continued to show strength, with the unemployment rate dipping as low
as 4.9%, compared with a 2009 peak of 10%. An average of 230,000 jobs a
month have been added in the past three months and consumer spending has
grown, Fed Chair Janet Yellen noted in a speech last week. Must Read: Bill Gross Says Low Rates Are Stretching Markets to the Breaking Point
Indeed, an increase of 215,000 jobs in March outpaced economists' expectations while the unemployment rate rose only slightly, to 5%.
The bump "was for good reason, as the labor force participation rate rose for the sixth consecutive month," Bank of America Merrill Lynch global economist Ethan Harris said in a note to clients on Friday.
Oil prices, meanwhile, topped $40 a barrel in March before paring
gains, though they remain more than 60% below their 2014 peak of above
$107.
"With financial market volatility subsiding since earlier this year,
it is to me surprising that the expected path of monetary policy
embedded in futures markets is so low," Rosengren said. "The risks seem
to be abating that problems from abroad would be severe enough to
disrupt the U.S. recovery."
Monetary policy committee members themselves indicated in March that
rates may be increased twice this year, ending the year at between 0.75%
and 1%.
"The Fed's communicated path for policy looks at least remotely
achievable for the first time in quite some time, though we have argued
it may only be able to deliver one hike this year," Morgan Stanley
economist Ellen Zentner said in a note to clients Friday. "Over the
medium term is where we believe a more significant reality check is in
store."
In short, to keep interest-rate policy at a level that supports
maximum employment and 2% inflation, the central bank will likely have
to raise rates in both 2017 and 2018 fewer than the four times a year it now projects, she said.
While lower rates tend to bolster the markets as a whole, they do the
opposite for banking and finance stocks. The finance industry has been
pressured by seven years of near-zero interest rates, which reduce net
interest income, a key revenue stream made up of the difference between
what banks such as JPMorgan Chase(JPM - Get Report) and Citigroup (C - Get Report) charge to lend money and what they pay to depositors.
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.
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.”
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.
The smartest insight and analysis, from all perspectives, rounded up from around the web:
Imagine this: "Once upon a time, people actually gotpaidto lend money,"said Matt O'BrienatThe 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 IrwinatThe 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 CrookatBloomberg 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 TettatFinancial 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 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.
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.
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.
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
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
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.
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.
“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.”
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.
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."
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.
Average on US 30-year mortgage slips to 3.96 pct. a week after Fed raises short-term rates
FILE - This June 4, 2015, file photo, shows a sign indicating a site has
been sold in a new home development in Nashville, Tenn. One week after
the Federal Reserve raised short-term interest rates from record lows,
the average on a 30-year fixed-rate mortgage went the other way: It
dipped to 3.96 percent from 3.97 percent last week, mortgage giant
Freddie Mac said, Thursday, Dec. 24, 2015. (AP Photo/Mark Humphrey,
File)
Associated Press+ More
By PAUL WISEMAN, AP Economics Writer
WASHINGTON (AP) — What Fed rate hike?
One week after the Federal Reserve raised short-term interest rates
slightly from record lows, the average on a 30-year fixed mortgage went
the other way: It dipped to 3.96 percent from 3.97 percent last week,
mortgage giant Freddie Mac said Thursday.
The drop is a reminder that the Fed has only an indirect effect on
long-term mortgage rates, which more closely track the yield on the
10-year U.S. Treasury. And that yield, in turn, tends to stay down as
long as inflation remains low and investors keep buying Treasurys. The
10-year Treasury yield has declined slightly since the Fed's hike last
week.
"The Fed raising short-term rates by itself doesn't have a very
profound effect on mortgage rates," said Sean Becketti, Freddie Mac's
chief economist.
Back in the mid-2000s, when the Fed raised rates at 17 straight meetings, mortgage rates barely budged, Becketti noted.
Still, the average 30-year mortgage rate is up slightly from 3.83 a
year ago and from 3.76 percent in late October. Becketti said a few
additional modest Fed rate hikes won't likely have much effect on
longer-term rates until the central bank starts reducing the huge
portfolio of bonds it accumulated during and after the Great Recession.
The Fed's bond purchases were intended to lower longer-term loan
rates to try to stimulate borrowing and spending and energize the
economy. The Fed ended its bond purchases last year as the U.S. economy
strengthened. But it has yet to begin selling the bonds, which would
tend to nudge up longer-term rates.
Fed Chair Janet Yellen has signaled that the Fed is in no hurry to
start reducing its portfolio of bonds — one reason long-term mortgage
rates could remain low for a while.
What's more, inflation remains unusually low — well below the Fed's 2
percent target level. In addition, economic weakness and financial
volatility overseas are drawing many global investors to the safety and
relatively higher returns of U.S. Treasurys. This is putting further
downward pressure on longer-term U.S. yields and keeping long-term
mortgage rates low.
John Canally, chief economic strategist at LPL Financial, says
mortgage rates "should not be a major impediment to the housing market"
even if they do rise a bit in 2016. He notes that 30-year fixed-rate
mortgages averaged 6.5 percent during the housing boom of 2000 to 2007.
Historically low mortgage rates have helped the American housing
market recover from the real estate bust of the late 2000s. Despite a
recent decline, sales of existing homes are likely to rise 5 percent
this year from 2014. Year to date, new-home sales have advanced 14.5
percent, driven by job growth that has pushed the unemployment rate to a
seven-year low of 5 percent.
On Thursday, Freddie Mac also reported that the rate on 15-year
fixed-rate mortgages, which are popular with homeowners who are
refinancing their home loans, was unchanged at 3.22 percent.
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
receive the lowest rates.
One point equals 1 percent of the loan amount. The average fee for a 30-year mortgage was unchanged from last week at 0.6 point.
The average rate on five-year adjustable-rate mortgages rose to 3.06
percent, highest since September 2014 and up from 3.03 percent last
week; the fee remained at 0.4 point. The average rate on one-year ARMs
increased to 2.68 percent, highest since September 2013 and up from 2.67
percent last week; the fee held at 0.2 point.
Copyright 2015 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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.
Photo
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.”
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.”
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.”
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.”
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) 
FILE - This June 4, 2015, file photo, shows a sign indicating a site has
been sold in a new home development in Nashville, Tenn. One week after
the Federal Reserve raised short-term interest rates from record lows,
the average on a 30-year fixed-rate mortgage went the other way: It
dipped to 3.96 percent from 3.97 percent last week, mortgage giant
Freddie Mac said, Thursday, Dec. 24, 2015. (AP Photo/Mark Humphrey,
File) 
