Despite a Federal Reserve interest rate hike last month, which was supposed to boost mortgage rates, consumers are actually seeing lower rates in the first half of January.
According to Freddie Mac, 30-year fixed mortgage rates averaged 4.12% for the week ended January 12, 2017, down from the previous week when they averaged 4.20%. Even with the rate drop, though, mortgages are relatively high. "A year ago at this time, the 30-year FRM averaged 3.92%," Freddie Mac reports.
Economists had expected rates to rise after the Fed's decision to boost benchmark interest rates back in December. That may well happen - but it just hasn't happened yet.
"Despite the post-election bump in general consumer attitudes, a rapid rise in mortgage rate expectations has tamped down home purchase sentiment, at least in the near term," says Doug Duncan, senior vice president and chief economist at Fannie Mae. "A spike in economic optimism in the immediate aftermath of an election is typical. Whether consumers will sustain this level of optimism into 2017 remains unclear."
The spike in interest rates reflects, in part, the market's anticipation of pro-growth policies from the incoming administration, Duncan says. "If this optimism comes to fruition, it should translate into stronger income growth and increased job security for consumers - the two economic components that could help support housing sentiment this year," he adds.
Mortgage rates are going down and are adjusting because of several key factors, says Anthony Piccone, president of 7th Level Mortgage LLC, in Cherry Hill, N.J.
"In spite of the headline news numbers of a rebounding economy, the underlying data suggests otherwise," Piccone notes. "Even though the government numbers state an unemployment rate at 4.7% as widely published, the markets realize this is a false number that is inaccurate and real unemployment is more accurately still in the double digits, the stock market approaching 20,000 is benefiting Wall Street and not Main Street, and the general public are skittish as a result."
Due to a "general nervousness" of a potential stock market correction, the average investor is seeking to protect their assets and slowly moving into the relative safety of the bond market, which in turn is driving rates lower in the short term, Piccone adds. "Long term, however, barring any significant market correction in stocks, which is becoming more of a possibility, interest rates are headed higher for 2017," he says.
30-year fixed rate mortgage rates are tied to the 10-year Treasury note, which has declined about a quarter point over the last month (from 2.6% to 2.35%), notes Steve Solomon, a money manager with Massachusetts Avenue Advisors, in Washington, D.C. "This is tied to the cost of funds for lenders, and they are passing some of the lower rates on to borrowers," Solomon says.
"The second, and more impactful component, is lenders chasing volume," Solomon adds. "After the election, the surprise result and subsequent run-up in rates, mortgage applications have dropped year over year in the past eight weeks. This, coupled with the usual seasonal slowdown the end of the year has lenders with excess capacity to close loans and thus some are chasing volume with lower rates trying to entice borrowers to refinance or accelerate locking in rates on home purchases."
Real estate professionals say they don't expect mortgage rates to rise much further, at least in the short-term.
"In my opinion, rates are not going much higher," says Michael Moskowtiz, CPA and president of Equity Now, a New York-based mortgage lender. "Much of the horse is out of the barn now."
Moskowitz says that credit score issues and variable incomes remain big obstacles for mortgage consumers. "Credit scores can be quickly fixed by paying off overdue accounts and using good sense in mortgage applications," he says. "As for income, borrowers are advised to work with an experienced and knowledgeable lender to fill today's requirements for documenting income and employment."
There's no guarantee that mortgage rates won't start rising again, so now is a good time to act for would-be mortgage consumers looking to save some money. Wait too long, though, and the risk of rates rising, like many economists expect, may come back to haunt mortgage customers who remain on the sidelines.