Looking the the average mortgage rates reported for the week of 11-1-2014 and the what we can expect rates to do in the coming weeks based on recent news…
Freddie Mac Reported:
- 30 year fixed rate mortgages averaged 3.98%
- This is up from last week when it averaged 3.92%
- Last year at this time, 30 year fixed rate mortgages averaged 4.10%
- 15 year fixed rate mortgages averaged 3.13%
- This is up from last week when it averaged 3.08%
- Last year at this time, 15 year fixed rate mortgages averaged 3.20%
Check out the mortgage rate chart from Freddie Mac:
- The average rate for 30 year fixed rate mortgages rose to 4.1%
- The average rate for 15 year fixed rate mortgages rose to 3.27%
- The average rate for 30 year jumbo mortgages increased to 4.11%
The Mortgage Bankers Association Reported:
Despite the fact that mortgage rates are STILL super low, the MBA reported decreases in the number of mortgage applications. And it appears that more people are refinancing than buying as 65% of the applications were for refinances.
The average contract interest rate for 30 year fixed rate mortgages with conforming loan balances ($417,000 or less) increased to 4.13% from 4.10%, with points remaining unchanged at 0.21 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 30 year fixed rate mortgages with jumbo loan balances (greater than $417,000) increased to 4.13% from 4.03%, with points decreasing to 0.13 from 0.20 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15 year fixed rate mortgages remained unchanged at 3.28%, with points increasing to 0.24 from 0.22 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
Stuff to Think About:
Yes, mortgage rates from all 3 increased this week. Let’s look at some of the recent news that could affect mortgage rates:
QE / Quantitative Easing Ends:
Quantitative easing is over as the Fed has stopped its bond buying program. Some economists now expect to see a hike in the Funds Rate as early as March. The Fed’s key short-term interest rate has remained low since December 2008, and the Fed hasn’t said when they will begin to raise their benchmark interest rate.
During Quantitative Easing, the Federal Reserve bought lots of mortgage-backed securities instead of just Treasuries. Since 2008, the Fed has been purchasing mortgages and Treasuries that have helped bring interest rates down to historic lows. This did help the US real estate market by making mortgage rates low.
QE also helped Wall Street, the banks and the 1% and whether or not it has helped the majority of Americans is questionable.
The Federal Reserve plans to hold onto the $4.48 trillion in bonds it has accumulated in purchases since November 2008. Holding bonds on the Fed’s balance sheet limits the supply of securities trading on the public markets, which helps keep prices up and yields lower than they otherwise would be.
For now, the move is expected to keep borrowing costs low for “considerable time,” the Fed said. This will continue to keep borrowing costs low which in turn helps the Fed get inflation to rise. As long as the Fed continues to hold the mortgage backed securities, it will put downward pressure on rates.
A “considerable time” is pretty vague…
The latest employment cost index report came out from the Bureau of Labor Statistics this week. Overall compensation increased by increased by 0.7% in Q3, and wages increased by 0.8% YoY, compensation is up 2.2%, with wages up 2.1%. As I have been saying for a very long time, we must see see more jobs that pay decent wages if we want to see a healthy economy and housing market.
What is good for Wall Street may NOT be what is best for Main Street, the real estate market or the average American. Increasing wages is a good sign IF it continues.
According to the latest personal income and outlays report from the BEA, personal spending fell by 0.2% and personal income climbed by 0.2% in September. This is BELOW expectations and last month, personal spending rose by 0.5% and personal income rose by 0.3%.
Since much of our economy is driven by people buying stuff, it isn’t good to see a decrease in personal spending.
More good news from the Bureau of Economic Analysis was that GDP ( gross domestic product–the widest measure of U.S. economic activity ) increased in the third quarter at a 3.55% annualized rate. This is the second straight quarter of good growth. For the past six months GDP has been growing at a rate of 4.1%.
This is is above expectations because of strong contributions from net exports and government spending on national defense. More on that in a moment.
However, the real estate portion of GDP was down. Residential investment spending increased 1.9% which is lower than the 9% increase in the previous quarter. Commercial real estate investment (AKA nonresidential investment) increased 5.5% in the latest quarter. This sounds good until you compare it to the 10% increase in the previous quarter.
I have read several places that the strong GDP numbers were because of the government spending more on military stuff. Just to be clear, I personally want a strong military and do not mind my taxes being used to provide the best of everything for our military ( except for $300 toilet seats ).
The data shows that in the third quarter of 2014, the government spent $149 billion on the military. But that’s actually less than the third quarter of 2013, when the Defense Department spent $150.2 billion. And in second quarter of 2014, the government spent $137.9 billion on the military.
The Commerce Department takes quarterly spending, annualizes the results, and then compares the annualized numbers quarter over quarter. In other words, it calculated that defense spending in Q3, if kept constant for a year, would be $784.3 billion. Annualized defense spending, based on Q2 data, would have been $754.6 billion. That $30 billion difference is why some people think the GDP numbers were influenced by military spending.
Still this is still a strong report on the GDP. If GDP keeps increasing at this pace, it is a good thing. If moderate economic growth and the current pace of job creation are sustained, we could see more increases in wages AND the first Fed interest rate hike by mid-2015.
2 indicators of consumer confidence indicate that we could see the economy grow even more in the coming months.
The Survey of Consumers from Thomson Reuters/University of Michigan showed us that consumer confidence posted its third consecutive monthly gain in October. This is the highest level since July 2007. Consumers reported the most favorable personal financial expectations as well as the most positive year-ahead outlook for the national economy in the past seven years.
Also, the Conference Board’s consumer confidence index rose to its highest level since October 2007. A more favorable assessment of the current job market and business conditions contributed to the improvement in consumers’ view of the present situation. Looking ahead, consumers have regained confidence in the short-term outlook for the economy and labor market, and are more optimistic about their future earnings potential.
The Take Away:
Rising consumer sentiment and faster wage growth suggest to me that we could see the economy improve even more in the coming months. We will have to watch the upcoming holiday season to really get a better idea of how consumers feel. After all, it isn’t what you say but what you do. And if we see consumers spending at a healthy pace, it is quite possible that 2015 will be a fantastic year for the economy and real estate.
On the other hand, we really do not know for sure what the long term impact of the Fed stopping QE will be. Also we do not know when the Fed will start to raise rates.
There is no doubt that the economy is doing better as evidenced by the GDP. It is possible that we will see an even stronger economy in 2015.
And we may also see higher mortgage rates…