According to Freddie Mac’s (OTC:FMCC) latest Primary Mortgage Market Survey (PMMS), all mortgage products increased this week except the 1-year ARM. This brings 30-year mortgage rates back to levels seen in May of this year, while the 15-year ties levels not seen since June. Even so, mortgage rates remain incredibly low.
The 30-year fixed-rate mortgage (FRM) averaged 4.86%, with an average 0.8 point for the week ending December 30, 2010, up from last week when it averaged 4.81 percent. Last year at this time, the 30-year FRM averaged 5.14 percent.
For the year as a whole, 30-year fixed mortgage rates averaged just below 4.7 percent in 2010, which represented the lowest annual average since 1955 when secondary market yields on FHA mortgages were above 4.6 percent and the average price of a home was $22,000.
For anyone who is waiting for mortgage rates to inch lower, the bond market faces a major hurdle this Friday, January 7, 2011 when the December Employment Situation Report is released. Floating into and through this economic data release is a high risk event. Which means the best execution 30 year fixed mortgage rate could move 0.25% to 0.375% higher. It could also move back down firmly to 4.75% or even 4.50% if the bond market experiences a sustained recovery rally.
This is going to be the wild card this year. Rates will go up, inflation will go up, ($5 gas anyone? How’s that 5 expansion sounding now?).
People will go ballistic and again blame the fed.
What this means for the market will be an ideal test case and will answer a number of questions;
1.) Will higher rates reduce prices?
2.) Will higher rates reduce sales numbers?
3.) Will higher rates do the opposite to the (2) above?
What should be a tepid year will at least have some interesting dynamics for analysis.
Inflation will go up, the dollars have already been printed and the wars are in progress. With inlation increasing so will house prices. Dont believe me? Ask your parents (vietnam) or grandparents (2nd world war). Or check your historical trends though I think it may take a year or four to appear, appear it will.
“With inlation increasing so will house prices. Dont believe me? Ask your parents (vietnam) or grandparents (2nd world war). Or check your historical trends though I think it may take a year or four to appear, appear it will.”
As long as the inflation ends up inflating wages then, yes, you’ll get rising home prices with inflation. If we don’t get rising wages because of globalization, union busting, and high unemployment then home prices will not rise. Gas and Food would, but homes and other non necessities wouldn’t.
My Predicition–3.5% interest rates (or lower)at some point in 2011–Why? Simply because early last yeat when rates were 5.25, a vast majority of people were certain that rates would increase in 2010–what happend–they actually decreased down to 4.25 in October of 2010. Now again, people are certain rates are going to increase–Will history repeat itself??? I don’t know, but banks are borrowing money very very cheap, and rates today should actually be in the 3%’s. If they were, that would sure keep things inflated and get people in the lending industry working title, escrow, mortgage, banks appraisers, etc…
Local Boy’s right.
Interest rate spreads are right now enormous.
Either consumer-rates go down, central bank rates will rise, a combination of both, or the banking sector continues a wild growth streak.
When you can get more or less guaranteed 30% gross return on funds (based on current leverage ratios and spreads), it’s a surprise there isn’t a larger sucking sound of productive capacity into banking already.
This is the age of the banker. I’m thinking I chose the wrong profession.
Chuck
There are three things working against higher inflation in the US.
1. Unemployment at 10%. Wages aren’t going up with unemployment at 10%.
2. Large debt overhang. People are still in debt and aren’t going to start spending huge wads of cash because no one will loan it to them.
3. If you want to sell dollars and buy another currency, which one do you buy? The Euro is in trouble, England isn’t looking too hot, you can’t buy the Yuan, the Japanese have huge government debt, etc. The dollar doesn’t look so bad compared to other major currencies.
Of course, countering these issues are our dependence on foreign oil and commodity inflation. Is commodity inflation enough to cause significant price increases when wages are going down? I’m not convinced either way, but I sure don’t expect inflation to go into overdrive.
The best news I’ve seen regarding interest rates is the low spread between conventional and jumbo loans. Last week it was only .125% at Wells Fargo. That to me is good news for the higher end of the market, which has really suffered.