Mortgage rates are on the rise, so if you are planning to buy a home or condominium this spring, or are thinking of refinancing an existing loan, better hurry, experts advise.
Benchmark 30-year fixed mortgage rates hit 4.21 percent on March 9th, the highest mark of 2017, reported Freddie Mac’s Primary Mortgage Market Survey.
And, because the nation’s job market is improving and inflation is on the rise, experts say there is little doubt the Federal Reserve Board (Fed) will raise interest rates this week.
On March 10th the nation’s unemployment rate dropped to 4.7 percent with the addition of 235,000 jobs in February.
“The 10-year Treasury yield rose about 10 basis points last week, and for the first time in weeks, the 30-year mortgage rate moved with treasury yields and jumped 11 basis points to 4.21 percent from 4.10 percent,” noted Sean Becketti, chief economist of Freddie Mac. A year ago at this time, 30-year fixed-rate loans averaged 3.68 percent.
With interest rates on the rise, homeowners seized the opportunity to refinance their mortgages at the end of 2016, locking in fixed-rate loans.
Some 883,836 refinanced loans totaling $246 billion were originated in the fourth quarter of 2016, reported ATTOM Data Solutions’ U.S. Residential Property Loan Origination Report. That’s a 20-percent increase in loans, and a 27-percent hike in dollar volume from the previous year.
More than 3.3 million refinances and over 2.7 million home purchases were originated in all of 2016, according to the report.
Fed policymakers last raised the federal-funds interest rate in mid-December. Another is expected when the Fed meets on March 15th. Economists say at least two more upward rate adjustments are forecast this year, and four hikes are likely in 2018.
As inflation moves steadily toward the Fed’s annual 2 percent target, Fed Chair Janet Yellen said rate hikes will probably come at a faster pace in 2017 and 2018.
President Donald Trump’s plan to cut taxes and regulation while boosting military and infrastructure spending nationwide is expected to spark business confidence, a rising stock market and more inflation.
The good news for borrowers this spring is the effects of a heavy Congressional spending package will not affect the economy until 2018. “Which course inflation takes over the next year will have important implications for housing and mortgage markets,” Becketti said.
Economists are predicting home-loan rates of 4.5 percent by the end of 2017. However, if inflation heats up, rates could exceed that level. Benchmark 30-year fixed rates could hit or surpass 5 percent in 2018, some analysts say.
Long-term home-loan rates are not set by the Fed. They are tied to the yield on 10-year U.S. Treasury bonds. Ten-year Treasury bond yields have risen sharply to 2.61 percent on March 10th from 1.6 percent in the third quarter of 2016, pushing loan rates higher.
Because lenders expect the Fed to raise interest rates this week, the hike may already be priced into the current yield on the 10-year U.S. Treasury bonds, so mortgage rates may not jump much in mid-March. A likely scenario is that rates will trend gradually higher during the spring home-buying season.
If you are planning to buy a home or condo before higher rates price you out of the market, there are a few facts you should know:
• History is on your side. On the positive side, home-loan rates still are historically low. The annual average rate from 1972 through 2011 was higher than current rates. In 1999, benchmark 30-year mortgage rates were 8.15 percent. In June of 2003, lenders were charging an average of 5.21 percent. That’s an interest rate borrowers may see again in 2018 if forecasters are on target.
• Lower down payments available. New programs at Freddie Mac and Fannie Mae allow the secondary mortgage market gurus to purchase loans from lenders with lower 3-percent to 5-percent down payments, opening the homeownership door to more young, first-time buyers.
• More lenient credit scores. The average FICO score for home buyers obtaining mortgages backed by Freddie Mac currently is 750, a relatively high score. However, if a borrower is approved for a Federal Housing Administration-insured (FHA) loan, the score averages only 700.
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.