Discussing mortgage rates, the effect of rising mortgage rates on home prices, how long it took to close a mortgage last month, the February 2018 Realtor Confidence Survey, and much more!
Time once again to look at this week’s reports on mortgage rates. Let’s dive in!
Freddie Mac reported:
- 30-year fixed-rate mortgages averaged 4.45% with an average 0.5 point
- This is up from last week when it averaged 4.44%
- Last year at this time, 30-year fixed-rate mortgages averaged 4.23%
- 15-year fixed-rate mortgages averaged 3.91% with an average 0.5 point
- This is up from last week when it averaged 3.90%
- Last year at this time, 15-year fixed-rate mortgages averaged 3.44%
Check out the chart:
The recent increases sound scary until we look at what mortgage rates have done for the past 10 years…
Len Kiefer, Freddie Mac Deputy Chief Economist, said:
The Federal Reserve raised interest rates today — a much-anticipated move that comes as both U.S. and global economic fundamentals continue to strengthen. The Fed’s decision to raise interest rates by a quarter of a percentage point puts the federal funds rate at its highest level since 2008. The decision, while widely expected, sent the yield on the benchmark 10-year Treasury soaring. Following Treasurys, mortgage rates shrugged off last week’s drop and continued their upward march. The U.S. weekly average 30-year fixed mortgage rate rose 1 basis point to 4.45 percent in this week’s survey.
There is no doubt that we can expect more increases this year. Moving on…
The Mortgage Bankers Association reported:
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 4.68% from 4.69%, with points increasing to 0.46 from 0.45 (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 $453,100) remained unchanged at 4.55%, with points increasing to 0.37 from 0.33 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The average contract interest rate for 15-year fixed-rate mortgages increased to its highest level since April 2011, 4.12%, from 4.07%, with points increasing to 0.51 from 0.46 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
The MBA did not report increases like Freddie did BUT remember that we still have not seen all of the fallout from the Fed raising their benchmark rate. Some are predicting that rising mortgage rates will cause home prices to fall…
Rising Mortgage Rates Do NOT Cause Home Prices to Fall
I wrote several weeks ago about how rising mortgage rates do not cause home prices to fall but this needs repeating!
In case you missed my earlier article, Freddie Mac recently posted a report about how rising rates on mortgages may affect home prices. Freddie looked at the effect that increasing mortgage rates could have on the housing market.
While it may seem logical that rising mortgage rates would cause home prices to fall, their research revealed something completely different:
While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price.
Freddie also explained that the Freddie Mac National House Price Index is…
…unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.
Boom! I know some minds are being blown by this revelation! Check out this chart that shows what home prices did the previous 6 times that mortgage rates increased by at least 1%
Thinking that increasing mortgage rates cause home prices to fall could lead to a very expensive lesson!
Realtor Confidence Survey February 2018 Highlights
Each month NAR conducts a survey asking Realtors about local real estate market conditions, characteristics of buyers and sellers, and issues affecting home ownership and real estate transactions.
Here are the highlights from the February 2018 survey:
- The REALTORS Buyer Traffic Index was 70 which is the same as February 2017
- The REALTORS Seller Traffic Index was 44 which is 3 points higher than February 2017
- Properties were typically on the market for 37 days compared to 45 days in February 2017
- 88% reported that home prices in February 2018 remained constant or rose YoY
- First-time buyers accounted for 29% of sales
- From December 2017–February 2018, 76% of contracts settled on time
Overall, it appears that most Realtors are feeling pretty confident about the market. I am feeling pretty confident and for someone that is realistically pessimistic, that is saying a lot!
However, rising mortgage rates and the tight inventory will continue to affect the housing market in many areas. The key thing for home buyers to remember is that mortgage rates are STILL low compared to the highs we have seen in the past!
Cass Freight Index Increases
The latest Cass Freight Index increased with shipments up% YoY and expenditures up 14.3% YoY. They are saying that the increases are becoming almost too good as many are citing transportation costs as a source for potential inflation.
This reported was very positive and to quote them:
Bottom line, both the industrial and consumer economies are shifting into high gear.
I think that speaks volumes and should encourage everyone!
Time to Close a Mortgage Decreases in February
From Ellie Mae:
- Closing time for all loans dropped from 44 days in January to 42 days in February
- Time to close a refinance dropped from 40 days in January to 37 days in February
- Time to close a purchase dropped from 47 days in January to 45 days in February
- The average 30-year rate for all loans increased to 4.48% in February from 4.33% in January
- Closing rates for all loans decreased slightly to 70.6%
- The closing rate on refinances decreased to 65.0% in February
- The closing rate on purchases held steady at 75.7%
- 69% of all closed loans had FICO scores over 700
- 70% of purchase loans had FICO scores over 700
- 64% of refinances had FICO scores over 700
- The average FICO score on all closed loans was 721 for the 2nd consecutive month
- The average FHA purchase FICO score dropped to 679 in February
- Conventional purchase FICO scores held were 751
I know that some home buyers may be discouraged about the average FICO scores that Ellie Mae is reporting. However, a quick glance at the charts shows a different story:
As you can see, about 24% of buyers using a FHA mortgage had a credit score between 600 and 649. The key thing for ALL home buyers to do is to start talking to a lender long before you start looking at homes!
The reason to do this is that there may be things in your credit that could be improved before you start applying for a mortgage. This will save you thousands of dollars when buying a home or mean the amount you qualify for is higher!
UBS in $230 Million Settlement in Mortgage Securities Probe
UBS has reached a $230 million settlement to resolve charges brought by New York state that it misled and hurt investors by selling subprime mortgage securities that contributed to the 2008 global financial crisis.
The bank is the seventh to settle similar claims by New York, resulting in roughly $3.93 billion of settlements.
You may remember that I posted a couple of days ago about the Ending Too Big to Fail Act. Imagine if the seven banks that settled had executives playing don’t drop the soap in the prison showers…
That certainly would discourage the reckless type of behavior that helped to crash the economy!
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