Rates Are Still Low

May 19, 2015
ECONOMIC COMMENTARY
Sometimes we lose our perspective. While rates on home loans have been increasing for the past few weeks, if you read the headlines, it seems like rates are really high right now. They are not. According to the Freddie Mac survey of home loans, the 30-year fixed loan averaged over 5.0% every year from 1975 until 2010, a period of 35 years. That is a generation in which rates have averaged over 7.0% in the long haul.

It is only since the financial crisis hit that rates averaged below 5.0% and for the past five years, the average has been a little over 4.0%. Yes, there were a few periods where rates dropped below 4.0%, including early this year. However, when you look at the difference between 7.0% and 4.0%, rates are over 40% below where they have been historically. This is why renting is more expensive than owning right now in most areas of the country.

There is another message here that we have been delivering for a while. These low rates are not expected to last forever. Every time rates increase as they have in the past few weeks, we ask ourselves–is this the end of the super low rates? We hope not. However, we keep cautioning our readers that rates are great right now and if you are thinking about purchasing a home, refinancing or even purchasing a car, now is an excellent time. You never know when this sale on money will end.

Weekly Interest Rates Overview
The Markets. Last week rates on home loans continued their recent increases. Freddie Mac announced that for the week ending May 14, 30-year fixed rates increased to 3.85% from 3.80% the week before. The average for 15-year loans also increased to 3.07%. Adjustables were mixed, with the average for one-year adjustables increasing to 2.48% and five-year adjustables falling to 2.89%. A year ago, 30-year fixed rates were at 4.20%, which is 0.35% higher than today’s levels. Attributed to Len Kiefer, deputy chief economist, Freddie Mac — “Rates rose on home loans this week for the third consecutive week as 10-year Treasury yields continued to climb. The labor market continues to improve with U.S. economy adding 223,000 jobs in April, a solid rebound from 85,000 jobs gained in March. Also, the unemployment rate dipped to 5.4 percent in April as the participation rate ticked up to 62.8 percent and jobless claims were far less than expected.”Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.  
Current Indices For Adjustable Rate Mortgages
Updated May 15, 2015
Daily Value Monthly Value
May 14 April
6-month Treasury Security  0.08%  0.09%
1-year Treasury Security  0.23%  0.23%
3-year Treasury Security  0.91%  0.87%
5-year Treasury Security  1.51%  1.35%
10-year Treasury Security  2.23%  1.94%
12-month LIBOR  0.697% (Apr)
12-month MTA  0.166% (Apr)
11th District Cost of Funds  0.687% (Mar)
Prime Rate  3.25%
REAL ESTATE NEWS
 The National Association of Realtors (NAR) says that the adoption of new credit-scoring models could improve the ability of borrowers who lost their homes during the foreclosure crisis to buy again. Nearly 1 million of the 9.3 million homeowners who underwent a foreclosure, received a deed-in-lieu of foreclosure or sold their homes in a short sale between 2006 and 2014 have already purchased a home again, according to a new study by the NAR. Demand from so-called “boomerang” buyers will continue to bolster the housing market in the years ahead, with an additional 1.5 million consumers from the group analyzed by the NAR expected to become eligible for a home loan and purchase a home over the next five years, the NAR said. But damaged credit profiles and strict lending standards will continue to keep millions of would-be buyers on the sidelines. If lenders warm up to new credit-scoring models, however, many borrowers locked out of the housing market could re-enter it, according to the NAR. NAR Chief Economist Lawrence Yun pointed towards the Vantage Score 3.0 and FICO 9 as credit-scoring models that could improve some borrowers’ access to credit. Both models generally produce higher credit scores for borrowers with unpaid medical bills, and assign credit scores to some consumers who previously couldn’t get them. Vantage Score 3.0 also factors in a person’s rental payment history if such data is available. A FICO credit-scoring model currently being piloted by credit card issuers would hand even more credit scores to borrowers who previously couldn’t get them due to lack of recent credit history. Source: Inman NewsHome ownership may be worth putting off love, at least for millennials. Thirty-eight percent of American millennials (those aged 18-34) say they would – or have – delayed a wedding or honeymoon so they could afford to buy a home, according to a survey of more than 2,000 adults conducted by Harris Poll, on behalf of the real estate brokerage Redfin. Saving for a down payment may take precedence over saving for a wedding. Saving for a wedding has gotten pricier – recently hitting an all-time high of $29,858 last year, according to TheKnot.com. Many millennials say they’ll delay a marriage to lessen the financial burden of paying for a wedding and a home within the same year, says Clayton Jirak, a Redfin real estate professional in Chicago. “This is becoming a popular option for couples who are prioritizing home ownership over marriage,” he says. They may choose to commit to a home together before the walk down the aisle. Source: Redfin

Home owners are upbeat when it comes to the value of their homes. They’re willing to spend to preserve that value too. “Consumers are feeling better about their jobs, their wages, and certainly feeling better about the value of their home,” Lowe’s Chief Executive Officer Robert Niblock told Bloomberg. “They are re-engaging in projects that they have put off.” With these big box home-improvement stores, home values are key to growth, company officials say. That’s because when home owners feel good about the value of their home, they tend to be more willing to spend on repairs and remodels. And home prices have been on the rise: The median price of an existing single-family home in the past year rose in 86 percent of the 175 metro areas tracked, according to the National Association of Realtors®. Lowe’s, which surveys consumers every quarter, says that its most recent poll showed that 50 percent of the home owners surveyed reported that the value of their home is rising – marking a survey high (ever since Lowe’s began polling home owners in 2007). “That’s certainly good for their willingness to spend on the home,” Niblock says, adding that rising values of existing houses will be the single-biggest driver of Lowe’s business. Source: Bloomberg News

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