Wednesday, 22 November 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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