Mortgage Business

Oil and Rates

20140309-080351.jpgThere is an old saying which revolves around the fact that oil and water do not mix. But how about oil and interest rates — do they mix? The truth is that oil prices and rates have gone lower in tandem this summer. There was a time when the economy could be stopped or started with a change in either energy prices or rates. However, today the effects are not as clear. For example, changes in gas prices don’t seem to affect the consumer as much as they did decades ago. There are several reasons for this, but one important factor is the increase in energy efficiencies.

On the other hand, the magnitude of the effect of interest rates does not seem to have lessened, but it is hard to tell with rates remaining so low for the past several years. For example, last year when interest rates started to rise, the real estate market responded by eventually slowing down. Again, the direct effect is not as clear as it always has been. For example, so many in America refinanced at record low rates in the past few years, the rise in rates not only slowed down the pace of refinancing, but also made homeowners more reticent to put their homes on the market. Why leave a home which has such a low mortgage payment? This phenomenon has contributed to a shortage of listings which has in turn contributed to the slowing down of the real estate recovery.

Will the more recent decrease in rates reverse this trend? We really don’t think that today’s rates are high enough to keep people from selling their house. After all, rates are still close to as low as they have been in our lifetime. What will stimulate real estate is the continued generation of jobs which will increase household growth and a person’s confidence to make a move. Job creation may actually cause rates to rise, but as long as the interest rate increases are marginal, they won’t keep new households from purchasing their first home or renting a starter home. Meanwhile, lower gas prices and lower rates right now are good news for the economy and should be celebrated while they last.


The Markets. Fixed rates fell slightly in the past week with rates reaching their lowest level of the year. Freddie Mac announced that for the week ending August 21, 30-year fixed rates fell to 4.10% from 4.12% the week before. The average for 15-year loans ticked down to 3.23%. Adjustables were mixed in the past week, with the average for one-year adjustables up slightly to 2.38% and five-year adjustables decreasing marginally to 2.95%. A year ago 30-year fixed rates were at 4.58%. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans were down slightly this week, following the decline in 10-year Treasury yields. Meanwhile, housing starts in July jumped 15.7% to 1.093 million units after falling 4.0% a month earlier. Also, July’s consumer prices increased at a 0.1% seasonally adjusted pace, the slowest in five months.”  Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated August 22, 2014

Daily Value Monthly Value
August 21 July
6-month Treasury Security 0.06%  0.06%
1-year Treasury Security 0.10%  0.11%
3-year Treasury Security 0.95%  0.97%
5-year Treasury Security 1.64%  1.70%
10-year Treasury Security 2.41%  2.54%
12-month LIBOR  0.556% (July)
12-month MTA  0.118% (July)
11th District Cost of Funds  0.668% (June)
Prime Rate  3.25%

  A new study suggests that about 1.4 million foreclosures between 2008 and 2012 were prevented because the expansion of unemployment insurance benefits cut the likelihood of home loan delinquency. “This finding implies that unemployment insurance played an important role in preventing housing default during the Great Recession, despite neither being targeted at homeowners nor being promoted as a housing policy,” according to the working paper from the National Bureau of Economic Research by a team of researchers from the Federal Reserve and Northwestern University. From 2008 to 2012, about 5 million foreclosures were completed nationwide, according to data from CoreLogic. The 1.4 million avoided foreclosures that researchers attribute to unemployment insurance would have represented a substantial portion of distressed properties during that time, the paper notes. “Policies improving borrowers’ ability to pay can be effective in reducing delinquency risk, even among those with incentive to strategically default,” researchers note. “Unemployment insurance extensions during the Great Recession created a substantial welfare gain.” The report also noted that having fewer distressed properties cut the government’s cost by decreasing the number of bad loans that would have been covered by government-sponsored enterprises Fannie Mae and Freddie Mac. The researchers estimate that the savings related to Fannie and Freddie decreased net costs for the government’s jobless benefits expansion by about one-fifth. Source: The Wall Street Journal

The Millennial generation is larger than the baby boomers — 87 million versus 76 million — and they’re expected to be a huge force in the real estate market in the coming years. The number of households in their 30s is expected to increase by 2.7 million over the coming decade, which should boost demand for new housing, according to a housing report by Harvard University’s Joint Center for Housing Studies. Millennials are not only bigger in size, but they’re also more diverse, U.S. Census data shows. Only 56 percent of Millennials are white. Indeed, generations are gradually becoming more diverse. Babies born today mark the first generation where whites make up only 50 percent of the population, and in a few years, white children will no longer make up the majority, according to U.S. Census data. Source: CNN/Money

Should I buy or rent? That’s a question most people face at some point in their adult lives, and though every situation is different, the primary factor to take into consideration is how long you plan to stay put. According to Zillow’s recent breakeven horizon analysis, in half of metros in the U.S., buying beats renting after only two years. Rising rents and low rates on home loans have helped skew the rent vs. buy decision toward buying for those who can afford it, leaving renters wondering why they should renew their leases when they may be able to break even on a home purchase in less time. Because conditions for buyers and renters can vary dramatically even within cities themselves, Zillow produces breakeven horizons down to the neighborhood level in order to give potential buyers and renters the most insight into local conditions where they’re considering living. Zillow’s breakeven horizon calculates the point, in years, at which buying a home becomes less expensive than renting the same home. It incorporates all costs associated with buying and renting, including upfront payments, closing costs, anticipated monthly rent and mortgage payments, insurance, taxes, utilities, maintenance and renovation costs. We also consider the different asset streams available to buyers and renters. For buyers, the home equity grows. Alternatively, renters can invest some of the money they would have spent on a home purchase and earn interest. It then factors in historic and anticipated home value appreciation rates, rental prices and rental appreciation rates. Source: Zillow

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