If you’ve been reading the
same papers I have this week, then you’ve likely noticed the headlines swirling
about falling mortgage rates. The average rate on the 30-year fell to 4.12%
according to Fannie Mae, the average on the 15-year to 3.25%. This is one-third
of a point lower than the highs that hit late last summer, but also about a
point higher than the lows of recent years.
What’s driving rates down? Not dismal economic news. Rates tend to fall when
data is released showing that the economy is slowing – and rise when we get
reports that it’s improving. We got the latter this week. Consumer
confidence is up according to The Conference Board. Durable goods orders are
rising. And, according to a recent Gallup Survey, the amount consumers
are spending on a daily basis – at $98 -- is at a six-year high and $10 over
the April average.
The take from Bankrate.com: The
markets don’t seem to believe the economy is headed for a roar -- more like a
“slow growth, low inflation” period of the sort that supports bond prices
(yields on 10-year Treasuries are akin to 30-year-mortgage rates). There’s also
some sense that the housing market, while improving, has a decent amount of
ground to make up before it’s fully recovered.
So what does this mean for you going forward? I was asked that question this
week on Twitter: @natehyde
wrote: Do you foresee the rates for the 30 yr getting into the 3’s?
I don’t, and neither do the forecasters at HSH.com. According to their most
recent weekly post: “Will mortgage rates continue their slow downward drift
next week? Probably. Are they confounding expectations, including ours?
Yes….For our part, we think the [upcoming] news will be pretty solid, and both
stocks and interest rates may firm a little bit.”
If you’re shopping for a loan, take a look at hybrid products that can lower
your rate, while not dramatically increasing the amount of risk you’re taking.
Last week, The Wall Street Journal wrote about a 15/15 adjustable rate loan
from PenFed Credit Union. Like other ARMs (5/1s, 7/1s, etc.), it’s fixed for
the first part of the term, then adjusts a single time. Right now, the starting
interest rate is 3.65%. If you think (or even know) that you’ll be out of your
house by then, that can be a smart move. Likewise, Bankrate Senior Financial
Analyst Greg McBride has seen 5/5/20
adjustables, which are fixed for the first five years, then adjust and hold for
another five, then adjust once again. “These are products that warrant
consideration for people who are not using them as a crutch of affordability,”
he says, noting that using an adjustable to buy more home than you could really
afford was a big problem when the housing market collapsed. “They’re for people
who have plenty of cash flow to make the payments, but are disciplined enough
to put the savings into other investments.”
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