Home-Loan Interest Rates Continue To Decline Despite Forecasts

Despite economic forecasts predicting higher mortgage interest rates in 2016, home buyers and homeowners seeking to refinance are being given a reprieve.

In December, the Federal Reserve raised its benchmark short-term interest rate a quarter of 1 percent—the first Fed rate hike in nine years following the Great Recession.

Financial analysts said the modest rate increase to the federal-funds rate would put upward pressure on interest rates for a wide assortment of consumer and business loans—from home equity loans and mortgages to auto loans and student borrowing obligations.

However, the opposite happened. Mortgage rates have moved lower for six consecutive weeks in early 2016 amid ongoing market volatility. In mid-February, the average 30-year fixed-rate home loan is hovering just above its 2015 low of 3.59 percent, reported Freddie Mac’s Primary Mortgage Market Survey.

“The 30-year mortgage rate dropped another seven basis points on February 11th to 3.65 percent from 3.72 percent,” said Sean Becketti, chief economist, Freddie Mac. “This drop leaves the mortgage rate just six basis points above last year’s low of 3.59 percent.” A year ago at this time, benchmark 30-year fixed home loans averaged 3.69 percent.

In the Chicago area, 30-year fixed home-loan rates available last week at selected banks and mortgage companies ranged from 3.389 percent to 3.689 percent, according to Bankrate.com.

“In a falling-rate environment, mortgage rates often adjust more slowly than capital market rates, and the early-2016 flight-to-quality has run true to form,” said Becketti.

The 30-year mortgage rate has dropped 36 basis points since the start of the year, while the yield on the 10-year Treasury has dropped 59 basis points over the same period, he noted. “If Treasury yields were to hold at current levels, mortgage rates might well sink a little further before stabilizing,” Becketti said.

Now, Federal Reserve watchers are betting that the Fed will not hike rates again in March, so if you plan to go house hunting this spring odds are the mortgage market will be favorable.

Mortgage experts say home buyers who plan to place a 20-percent down payment and reside in their house more than seven years should choose a 30-year fixed-rate loan at 3.5 percent, instead a five-year adjustable-rate mortgage at 2.85 percent.

The interest-rate horizon is so cloudy that Federal Reserve chief Janet Yellen told America’s banks that instead of paying interest on deposits financial institutions store with the Fed, maybe the Fed should consider charging banks a fee. Should the Fed penalize banks for sitting on their money?

Experts say there are several forces at work pushing interest rates lower. Here are a few of them: • Aggressive money-easing policies are underway in most parts of the world. Several central banks, including the Bank of Japan, European Central Bank, and Swiss National Bank, have slashed rates so much that they now are negative, or below 0 percent, reports Standard & Poor’s.

• Rock-bottom inflation and bargain-priced oil have pushed interest rates lower. Banks are lowering interest rates because prices aren’t rising much. Although oil prices rebounded a bit last week, the price of a barrel of oil has declined 70 percent over the past two years.

• Stock market jitters are forcing investors to sell stocks and buy bonds. Standard & Poor’s 500 index has slumped this year while the Vanguard Bond Index has risen modestly.

So, will the Fed buy into the concept of going negative on its benchmark interest rate? Some experts believe if the economy doesn’t get better, it is a future possibility.

For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.