by Broderick Perkins
(1/28/2013) - Mortgage interest rate-driven home buyers and homeowners who want to refinance, may not see a better time to make a move.
Home prices are on the way up, the economy is improving and Federal Reserve flip flopping could pull the rug out from under economic stimulus measures that have helped keep rates low.
Both big-picture economic forecasts and expectations from mortgage experts in the trenches indicate while the movement may be slow, even imperceptible at times, evidence about the direction of mortgage interest rates is compelling.
"There's no panic to rush, rates are incredibly low," said Cheryl Dehoney, an area manager for Prime Financial Services in San Mateo, CA.
"But based on information available, the trend in interest rates is slow with a biased opinion that rates will increase gradually. If you have a rate that's above 4.5 percent, it's time to refinance," Dehoney added.
Not only should rising rates prompt housing consumers to get off the fence, but mortgage lenders are also beginning to ease lending standards, according to the most recent Federal Reserve Board's Senior Loan Officer Opinion Survey.
Fannie Mae and Freddie Mac concur.
In a recent Fannie Mae Economic and Housing Outlook "Transition to Normal," the forecast is for rates to rise, but only to 3.8 percent by the end of 2013 and 4.2 percent by the end of 2014.
Fannie Mae bases its forecast, in part, on continuing efforts by the Federal Reserve to keep benchmark rates down, something the Federal Reserve has said it will do until 2015.
Freddie Mac paints a similar picture.
Federal Reserve action
"Look for fixed-rate mortgage rates to remain near their 65-year record lows for the first half of 2013 then begin rising a bit in the tail end of next year, but staying below 4 percent," said Frank E. Nothaft, chief economist of Freddie Mac.
But rumblings within the ranks of the Fed indicate downward interest rate pressure could end sooner than expected if the economy takes off.
"Interest rates will go wherever the Feds want them to go. If the Fed keeps buying bonds, which they have indicated they will do for the foreseeable future, the rates will stay at or below 4 percent, currently in the 3.5 percent range for the balance of this year," said Carl San Miguel, 2013 president of the Santa Clara County Association of Realtors in San Jose, CA.
There are many "ifs" on the horizon for mortgage interest rates, including the federal debt, deficit spending, and both the domestic and global economy.
"If the Fed stops buying bonds, then you may see a rapid increase in interest rates and they may jump into the 5 to 6 percent range real quick," said San Miguel, also owner of Highland Group Companies in Campbell, CA.
Jeff Chalmers, vice president of mortgage lending with Guaranteed Rate in Franklin, MA agrees with the big picture.
He says the economic market doesn't end at U.S. shores and international incidents send waves of change to the domestic economy.
When investors at home and abroad fear risk and flee to the relative safety of U.S. Treasury purchases, bond buying translates into lower mortgage rates. Once the economy shows signs of strength, however, fickle investors return to their homeland and flock to Wall Street.
"The Treasury has dedicated significant funds to counterbalance our stagnated economy through consistent mortgage backed securities purchases, but that's only until the economy shows signs of strengthening. That's (economic strengthening) strictly open to interpretation by the Federal Reserve, so consumers should get going while the getting is good," Chalmers said.
Chalmers says with every 0.25 percent interest rate increase, buying power is reduced by about $10,000 or more, based on a housing consumer's ability to afford a larger mortgage or a larger down payment.
As an example, a 3.375 percent rate can get you a $300,000 mortgage, but at 4 percent the loan shrinks to about $280,000, based on an income of $75,000 a year, a $500 per month debt, annual real estate taxes of $4,000 and annual home insurance premium $750, Chalmers says.
"Get off the fences and that includes refinancing for current homeowners who want to reduce their debt, lower their payment or reduce their term. With a hot real estate market and increasing mortgage rates, consumers will soon be able to capture less of a home. With more and more consumers hitting the neighborhoods, what once was a steal, could become a thing of the past," he added.
Newark, DE's John R. Thomas a certified mortgage planner with Primary Residential Mortgage says the writing's on the wall.
CoreLogic predicts home prices in 2013 will increase by 6 percent after nine consecutive months of past home price increases, inflation is beginning to creep up and "remember, inflation is the enemy of bonds," Thomas says.
"Now is the time to buy your home. You will get appreciation if you buy now. If inflation kicks in, homeowner rates will move up," and there will be less appreciation to enjoy, he added.
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