Mortgage Rates – “Down go mortgage costs despite latest cut in Fed’s rate-lowering stimulus program. … Mortgage rate freakout a year ago proved unfounded.” …
Loan Rates Down Over Last Year
Last year at this time, market watchers were basically freaking out with predictions of skyrocketing home loan interest rates. In June of 2013 the Federal Reserve announced that it was pulling back on a stimulus program that had been seen as helping to keep rates very low. When the announcement came, many “in the know” were convinced we’d see a jump in rates that could kill the recovering real estate market.
As a result of that announcement … and the near-panic it engendered in some corners … interest rates that week jumped from 3.93% to 4.46%, the biggest one-week jump since the late 1980’s. Many forecasters were certain the real estate market had been prematurely euthanized. What actually occurred has been quite different than what these folks expected.
This last week, average interest rates were reported being offered on 30-year fixed products at 4.14%, down from 4.17% the week before. When you turn that number into actual rates offered to buyers, it means a 30-year fixed rate loan at 4.125%, as opposed to 4.5% last year at this time. That’s nearly $1,000 less in payments on a yearly basis than folks were paying in June of 2013.
Here’s a really comprehensive article by E. Scott Reckard from today’s Los Angeles Times:
The great rate freakout of June 2013 looks awfully panicky in the rearview mirror, with fixed mortgages now far cheaper than they were back then. It’s been a full year since the Federal Reserve unnerved home lenders and buyers by announcing it would choke back a stimulus program that had sent long-term borrowing costs to record lows.” …
Mortage Rates Show Housing Market Strong … Economic Growth Slow
The good news on mortgage rates can teach us a few things and indicate a few financial realities as well:
First off, panic can blind anyone, even those who usually know what they’re doing. In our experience, pronostications of either wildly pessimistic drops or amazingly explosive booms, in any “market”, are usually hot air. The reality is much more likely to be somehwere in the “Great Middle Way“. Market traders who understand the concepts of “contrarian” trading will know what I mean. When a whole lot of folks suddenly predict a great Boom or a great Bust, you can usually expect a very high liklihood of the exact opposite being the true course of things.
Secondly, we know that loan prices are pressured upwards by many factors. One of those can be economic growth in general. When the economy grows quickly we see the danger of inflation and rising prices on everything. The fact that the Fed was able to reduce its stimulus activities in the home mortgage market and rates have actually gone down is a reflection of a generally sluggish economy. The economy is growing, but slowly. The current prices of home loans shows us that there is no great upwards pressure from inflation. Thus, the withdrawal of Fed stimulus had no great upwards effect.
And, thirdly, the rates today are another good indicator that the real estate market is strong. “Supply and Demand” are still the two great arbiters of any market, and home loans are no exception. There is solid “demand” for home loans, which helps to keep rates down, and further assures us the housing market is set on a good course for the near future.