Tuesday, September 18, 2012

Mortgage Headlines Sound Worse Than the Truth of Near-Record-Low Rates

The latest headline about home loan costs isn’t what homebuyers want to read. “Mortgage Rates Move Higher for Third Consecutive Week,” said Thursday’s announcement from mortgage giant Freddie Mac. As ominous as that sounds, mortgage costs actually haven’t moved much this year. And the most recent increases for fixed-rate 30-year home loans — from a nationwide average of 3.49 percent in late July to 3.62 percent this week — are just chicken feed.

The rise in rates since last month would add about $15 to the monthly payment on a $200,000 conventional loan. That won’t get you a tank of gasoline. Current average home loan rates are still well below where they were a year ago.

Thanks to the Federal Reserve — which has basically promised to keep the lid on borrowing costs until 2014 — mortgage costs should be the least of the worries for homebuyers.
“In fact, we wouldn’t be surprised if rates dropped some more,” said James Gaines, an economist with the Real Estate Center at Texas A&M University. “We’re not necessarily saying they will, but it wouldn’t be a surprise. Rates will be volatile within a fairly small range for the rest of the year.”
Homebuilders also aren’t fretting about higher borrowing costs. National Association of Home Builders’ chief economist David Crowe said any increase in mortgage rates during the remainder of the year won’t be appreciable. “Arrival of a Quantitative Easing 3 [another round of bond purchasing] by the Fed would also keep them down,” he said.
Local mortgage folks say that the tiny rise in mortgage rates over the last month has gotten a mixed reaction from their customers. “This slight increase has increased my volume by nearly 50 percent,” said Bill Parker of Old Capital Residential Lending. “I’m telling folks that rates always rise quicker than they fall so I am recommending that they lock a rate that hasn’t been seen since the late 1950s and early 1960s.”
But Mark Raskin of PrimeLending said rate increases so far haven’t spooked his customers.“The educated consumers realize that rates are still ridiculously low,” Raskin said. “With sub 4 percent rates, does a one-quarter point increase really make a difference?” “Psychologically, we always want the very best rate ever available,” Raskin said.
For sure, homebuyers and refinancers understand the wisdom of locking in these low mortgage costs. During the second quarter, more than 95 percent of mortgage refinancing was with fixed-rate loans, according to Freddie Mac.

Steve Brown
Real Estate Editor
Dallas Morning News