It seems every year the experts call for an end to the low mortgage rates. Every December/January we hear from the industry pundits that this will be the year mortgage rates finally rise.
But then something odd happens – they don’t.
And 2016 appears to be no different than the past several years. In fact, it’s probably the best start to a new calendar year in terms of mortgage interest rates in a very long time.
Freddie Mac reported today that rates fell for a third straight week, with the 30-year fixed sliding to 3.81% from 3.92% a week earlier, its lowest point in three months.
A year ago it stood at 3.63%, which is obviously lower, but not by much. And again, everyone expected rates to be much higher by now. After all, the party had to come to an end sometime, right?
Well, not with the economic woes we’re facing globally. China, very cheap oil, weak inflation, a stock market rout. This is the classic recipe for a flight to safety, aka selling stocks and buying bonds. That’s good news for mortgage rates, but not much else.
Sure, you might be able to refinance your mortgage again but your Apple stock is now only worth $96 a share instead of $120. Boo hoo.
The 10-year bond yield is now back below 2% and could be heading lower. The 30-year mortgage tends to move in relative lockstep with the 10-year which explains the move lower in recent weeks.
What Does This Tell Us?
Well, first it tells us the pundits were wrong again, at least so far. Of all the 2016 mortgage rate forecasts, Fannie Mae is the only one that comes close. They’ve called for relatively flat rates this year and they could be spot on if the economy calms down.
The rest of the forecasters see rates heading more than a full percentage point higher from current levels which just doesn’t seem likely anymore.
Maybe it’s time to accept the fact that this is the new normal in the mortgage rate game. That they will stay low for a long time and not just automatically increase because we have new calendars on our walls.
As I noted a while back, the Fed’s tentative and rather belated rate increase was a clear sign not all was well in the economy. And now we’re seeing why. For this reason, there should be no panic regarding mortgage rates.
Unfortunately, this lack of urgency could also hurt the housing market if prospective buyers don’t see any reason to get moving before it’s too late.
With home prices still at lofty levels and rates seemingly in no hurry to rise, why should home buyers be rushing to sign purchase contracts? If anything you might sit back and wait for a pullback.
Everything else seems to be coming down from what in hindsight looked a wee bit expensive. Are home prices next?
I keep an eye on home prices and tour open houses here and there to see what’s out there and it’s not pretty. A lot of really expensive properties that aren’t at all appealing and have no business being priced as they are.
The only reason many of them probably sell is due to a lack of inventory, which I suppose is the reason home prices keep rising. But can that trend go on forever?
To sum things up, it’s a new year and mortgage rates and once again defying expectations. The odd part is that comes as absolutely no surprise.