Mortgage Business

Have We Hit Bottom?

February 17, 2015


Usually, when we hear that someone or something has “hit bottom” — that is a good thing, because the only direction that person or thing can go from there is up. On the other hand, if we are talking about oil prices and interest rates, hitting a bottom might not be considered a good thing. For example, if you were looking for gas prices to hit $2.50 per gallon, they are not going near that price if we have indeed already hit bottom.

Indeed, there is some evidence that oil prices bottomed around $45 per barrel. We are not surprised by the fact that oil prices rebounded to the $50 per barrel range because they had fallen so far and so fast. Often markets overshoot the fundamentals and come back to be in balance. Are oil prices going back to $100 per barrel? We have no idea because we can’t predict the future. However, most likely the price will settle somewhere in between $45 and $100 without some major intervening economic or political variable.

Interest rates too have been falling for the past few months. Not as precipitously as oil, but one must remember that rates were already very low. The fact that rates went back to the record low levels hit two years ago, was quite extraordinary and certainly not predicted. Like oil, we are not surprised that rates have rebounded somewhat. If a few weeks ago was the bottom, there will likely be a rush of those who waited too long. When homeowners and buyers realize that, we expect there to be lines forming to refinance or purchase a home. The question is — is there still time to get in front of the line?


The Markets.  Fixed rates on home loans rose in the past week in the aftermath of the strong jobs report. Freddie Mac announced that for the week ending February 12, 30-year fixed rates increased to 3.69% from 3.59% the week before. The average for 15-year loans rose to 2.99%. Adjustables were also higher, with the average for one-year adjustables up slightly to 2.42% and five-year adjustables increasing to 2.97%. A year ago, 30-year fixed rates were at 4.28%, which continues to be more than 0.50% higher than today’s levels. Attributed to Frank Nothaft, vice president and chief economist, Freddie Mac — “Rates on home loans rose this week following strong economic data. The economy added 257,000 new jobs in January after robust increases of 329,000 in December and 423,000 in November. The unemployment rate edged up to 5.7 percent last month from 5.6 percent in December. Average hourly earnings rose 0.5 percent, following a 0.2 percent decline in December.”  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 February 13, 2015
Daily Value Monthly Value
February 12 January
6-month Treasury Security  0.07%  0.08%
1-year Treasury Security  0.23%  0.20%
3-year Treasury Security  1.02%  0.90%
5-year Treasury Security  1.50%  1.37%
10-year Treasury Security  1.99%  1.88%
12-month LIBOR  0.622% (Jan)
12-month MTA  0.128% (Jan)
11th District Cost of Funds  0.692% (Dec)
Prime Rate  3.25%

Call them the prodigal millennials: Statistical measures and anecdotal reports suggest that young couples and singles in their late 20s and early 30s have begun making a belated entry into the home buying market, pushed by mortgage rates in the mid-3 percent range, government efforts to ease credit requirements and deep frustrations at having to pay rising rents without creating equity. Listen to Kathleen Hart, who just bought a condo unit with her husband, Devin Wall, that looks out on the Columbia River in Wenatchee, Washington: “We were just tired of renting, tired of sharing (housing) with roommates, and not having a place of our own. Finally the numbers added up.” Redfin, a national real estate brokerage, said that first-time buyers accounted for 57 percent of home tours conducted by its agents mid-month — the highest rate in recent years. Home-purchase education class requests, typically dominated by first-timers, have jumped so far this month by 27 percent over last January. “I think it is significant,” said Redfin chief economist Nela Richardson. The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, which monthly polls 2,000 realty agents nationwide, reported that first-time buyer activity has started to increase much earlier than is typical. First-timers accounted for 36.3 percent of all home purchases last month, according to the survey. Source: Ken Harney, The Nation’s Housing

Sales of newly built single-family homes soared 11.6 percent in December over the previous month, as the new-construction market continued to gain ground heading into the new year. Single-family new-home sales rose to a seasonally adjusted annual rate of 481,000 units in December, nearly 9 percent above December 2013 levels, according to the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The inventory of new-homes for sale also rose, reaching a 5.5-month supply at the current sales pace. The median price of a new home sold in December was $298,100, up from November’s $291,600 median price. “This uptick is in line with what our builders are telling us in surveys and on the ground—that they are seeing increased traffic and more serious buyers in the market for single-family homes,” says Tom Woods, chairman of the National Association of Home Builders. “After a slow start to 2014, precipitated by bad weather conditions, new-home sales have ramped up in the second half of the year,” says NAHB Chief Economist David Crowe. “We can expect this momentum to continue into 2015 with the release of pent-up demand, particularly as existing-home owners are trading up.” Source:

The recent housing crisis has prompted questions over whether home ownership is still a viable way toward greater wealth in this country. Still, researchers continue to find evidence that home ownership contributes to individual wealth. One example: The Center for Responsible Lending cited The Federal Reserve Board’s Survey of Consumer Finances which found that median net worth of home owners in 2013 was $195,400, while at the same time the median net worth for renters was only $5,400. “Home ownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of home owners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth,” according to a recent editorial in The New York Times. The forced savings involved in home ownership is one big way home owners gather more wealth than renters. Home ownership requires buyers to save for a down payment and then, as owners, continue to save by paying down a portion of their loan principal each month. Renters could invest an amount equal to a down payment plus any savings from renting but most do not, according to a study by researchers at Harvard University’s Joint Center for Housing Studies, which recently was published as a chapter in a new JCHS book, “Homeownership Built to Last.” “We find that while there is no doubt that home ownership entails real financial risks, there continues to be strong support for the association between owning a home and accumulating wealth,” researchers note. “This relationship held even during the tumultuous period from 1999 to 2009, under less than ideal conditions. Importantly, while home ownership is associated with somewhat lower gains in wealth among minorities and lower-income households, these gains are on average still positive and substantial.” Source: The New York Times and Harvard University 

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