Investor Intel: Mortgage Rates Decline

Contributing Writer, B2R Finance | News

Well this is a surprise. Contrary to what everyone expected after the Fed raised rates, mortgage rates have actually fallen over the past five weeks. According to the latest Freddie Mac Primary Mortgage Market Survey, the 30-year fixed-rate mortgage declined to 3.72 percent for the week ending Feb. 4th.

“These declines are not what the market anticipated when the Fed raised the Federal funds rate in December,” said Sean Becketti, chief economist with Freddie Mac. “For now, though, sub 4 percent mortgage rates are providing a longer-than-expected opportunity for mortgage borrowers to refinance.”

Why are mortgage rates declining? We consulted the B2R capital markets desk, and in short, the root cause of it is most likely stagnation in global growth. This has also been the cause of volatility in the stock market.

Speaking of which, a wildly fluctuating Wall Street has people feeling a little less confident. The Bloomberg Consumer Comfort Index, which measures U.S. consumer confidence, eased to 44.2 in the last week of January after a three-month high of 44.6. U.S. homebuilders are also somewhat uncertain, as the National Association of Home Builders/Wells Fargo Housing Market Index stands at 60 for the month of January. This is still positive territory, but off a recent high of 65 in October.

So, what’s the good news? The housing market is continuing to enjoy moderate and solid gains, as predicted for 2016.

Home prices nationwide, including distressed sales, have increased year-over-year by 6.3 percent in December 2015 compared with December 2014, according to the most recent report from CoreLogic. Looking ahead, CoreLogic predicts that home prices will increase by 5.4 percent on a year-over-year basis from December 2015 to December 2016.

According to projections by Ten-X (formerly, existing home sales for January 2016 should be up a healthy 9.8 percent from a year ago, but down 3 percent from December 2015 (a normal seasonal lull).

To purchase these properties, it looks like people are turning to lenders for financing. Cash sales accounted for 33.9 percent of total home sales in the month of October 2015, again according to CoreLogic, compared to 36.4 percent in October 2014. Historically low mortgage rates play a big part in this trend.

In case you need further evidence single-family rentals are in demand, here’s a chart from Freddie Mac’s January 2016 Insight & Outlook report. As of 2013, the single-family rental market represented 35 percent of all rented housing units in the U.S. (more about rental growth here). That number will probably only rise.

Mortgage Rates Decline

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