Thursday, 23 March 2017

Why Rates Remain Deliciously Low

Written by Posted On Thursday, 05 March 2015 18:52

The Mortgage Bankers Association announced in late February that housing is poised for stronger growth in 2015. Yet mortgage interest rates remain low. Should you lock in a rate now or see what happens?

That depends on your tolerance for risk. Despite a positive outlook for the economy, researchers say that worries over global economic weakness continue to attract investors to US Treasuries.

As investments, mortgages compete with treasury bonds. According to researchers, a 30-year fixed rate mortgage has a lifespan of about seven years, making the 10-year Treasury bond the closest comparable investment. That's why mortgage rates tend to fall when the treasury rate falls, and rise when the rate rises.

Right now, the US economy is continuing on a path of steady growth. In 2014 payrolls grew at the highest rate since 1999. Low oil costs have lowered the import costs of goods and increased cash flow for consumers, which has helped drive economic growth for the past few quarters. All this good news should result in higher interest rates, but the MBA says global economic weakness and political unrest are putting downward pressure on interest rates.

Because oil prices are predicted to remain low for a long time, and the U.S. dollar is getting stronger, the MBA says consumer price inflation will be held to 1.4 percent for 2015. That's a good thing because inflation is the enemy of mortgage interest rates. If inflation picks up, the government will raise rates on overnight borrowing rates to banks. The result will be higher lending rates to consumers.

In its latest weekly survey, Freddie Mac showed average fixed mortgage rates moved higher amid solid housing data on new home sales and home price appreciation. That said, fixed rates are still near lows not seen since May 2013.

The benchmark 30-year fixed-rate mortgage (FRM) averaged 3.80 percent with an average 0.6 point for the week. Compare that to a year ago when the average 30-year fixed rate mortgage was 4.37 percent.

Should you lock in? Heck, yeah.

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Blanche Evans

"Blanche Evans is a true rainmaker who brings prosperity to everything she touches.” Jan Tardy, Tardy & Associates

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2 comments

  • Comment Link Barbara Deesing Broker Saturday, 07 March 2015 12:57 posted by Barbara Deesing Broker

    Now is a great time to buy property! Housing inventory is low and well priced homes in desirable areas are selling quick. I don't see property climbing up in price too awfully quick as there are still foreclosures out there bringing the overall market values lower, though they are stable as a whole. Buyers are urged to take advantage of these prices and interest rates, and as for the low inventory, this is good for sellers priced at fair market value. All in all, it looks like a win-win to me.

  • Comment Link Antoine Pirson Friday, 06 March 2015 18:00 posted by Antoine Pirson

    Hello Blanche:

    I like you article, but am not as positive as you are on longer low rates. The FED has "hinted" to raising interbank rate, and many fund managers think she will in June. Europe , with their QE1, is looking better for securities investment, and the Greece problem seems to be moving to resolution.
    I agree that inflation is low, but housing prices are still going up due to no or little inventory (in good area's), and builders are not building enough (SFR's) as they seem to still prefer units.
    So I am giving my buyers the advice of buying now with these low (historically) rates, and lock it in (for 30 years if necessary). The hedge is against interest rate increase AND house price increase.
    Kind regards
    Antoine

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