Housing remains the bright spot in a darkening economic outlook according to Freddie Mac's economists. Though they have revised their forecast for economic growth downward in the latest edition of the company's Outlook they are still forecasting housing will retain its momentum in 2016.
First quarter data painted "a bleak picture" of economic growth the report says. Information on consumer spending, manufacturing, auto and retail sales have led to successive downward revisions in real GDP growth estimates for the first quarter from others and Freddie Mac is revising its forecast from 1.8 percent to 1.1 percent. The company is looking for consumer spending, wage growth, and residential and business investment to pick up in the following quarters and for the GDP growth to be 2 percent for the entire year and 2.3 percent in 2017.
Even though job growth has been solid, Freddie Mac says wage growth has yet to materialize because of remaining slack in the labor market. However, labor participation did rise slightly in March as discouraged workers, seeing hope, again sought employment. The 0.6 percentage point increase since September 2015 means 1.5 million more workers. This more than offset the job gains over the same period so the unemployment rate ticked up 0.1 point to 5.0 percent in March.
This increase in participation suggests there is remaining slack in the labor force but perhaps not much; both the median weeks of unemployment and the share of those unemployed for 27 weeks or more have been declining, and unemployment should drop back below 5 percent for the rest of 2016 and 2017. "Stronger economic growth for the remainder of 2016 and reduced slack in the labor market will drive wage gains above inflation, though the gains are likely to be modest."
Freddie's economists maintain their positive view on housing and expect that the declines in long-term interest rates that accompanies much of the recent gloomier news should increase mortgage market activity, particularly refinancing, and housing will be an engine of growth. Construction activity will pick up as we enter the spring and summer and rising home values will help support renewed confidence in the remaining months of the year.
As of April 14, 2016, the national average for Freddie's 30-year fixed mortgage rate was 3.58 percent, the lowest since May of 2013. Mortgage rates have followed U.S. Treasuries closely, with the mortgage rate decline almost entirely a function of declining Treasury yields spurred by a flight to quality. As goes the 10-year Treasury, so too shall go the 30-year fixed mortgage rate which has fallen more than 40 basis points since the beginning of the year.
Freddie Mac has lowered its forecast for the 30-year rate for the second through fourth quarters by a tenth of a percent and expects that rate to average 4 percent for the year while still anticipating that the Federal Open Market Committee (FOMC) will raise short-term rates twice in 2016.
Both low rates and strong job growth should push home sales to the best year since 2006 even though they started the year slow. Chronically low inventories remain a challenge both for new and existing home sales and the report says, "At the current rate of construction, people should get used to seeing headlines about low inventory of for-sale homes in many markets for years to come. Demographics and demand are only going to increase the pressure on housing stocks."
Housing and Urban Development (HUD) estimates that between 2009 and 2011 there were over 800,000 1-unit housing units lost to conversion, demolition, disaster, condemnation, or other reasons. With approximately 90 million 1-units housing units in the country, about 414,000 must be replaced each year just to keep the stock constant. While single-family housing starts have been accelerating recently and are running above replacement rates, the difference is only about 400,000 units per year which is constraining growth in the single family market. Freddie Mac expects this to increase by another 200,000 over the next two years gradually alleviating tight inventories.
Tight supply along with demand driven by low rates and solid job gains will keep prices rising above historic average rates - an estimated 4.8 percent this year and 3.5 percent next year. This will also drive up homeowner equity from an estimated $12.4 trillion at the end of 2015, slightly below the not-inflation-adjusted peak of $13.3 trillion in 2006. The current surge in equity has not, like the earlier figure, been accompanied by a surge in mortgage debt but has gone almost exclusively to bolstering household balance sheets.
Mortgage debt will increase 3.5 percent this year and 4.0 percent in 2017, higher than in recent years but still well below the historic average of an annual 10 percentage point increase. There is also opportunity, given the low rates, for increased refinancing and since the recent drop Freddie Mac has refigured its February estimate that rates dipping below 4 percent would increase refinance potential by $122 billion.
They say the contract rate on most loans clusters around every eighth of a percentage point. For example, there are clusters of loans around 3 percent, 3.125 percent, 3.25 percent, and 3.5 percent, but not many loans with contract rates in between. If borrowers react to specific rate incentives, e.g., refinance if market rates drop 1 full percentage point below the borrower's contract rate, then refinance activity will tend to ratchet higher with each eighth point rate reduction. In the week of April 7, 2016, mortgage rates had their biggest one-week decline in over a year of 0.12 percentage points (nearly one eighth). Replicating its February analysis, the company says that one-week decline increased in-the-money refinance potential by $66 billion.
They also ran a macro simulation of the U.S. economy, housing, and mortgage market. That showed the decline relative to the February analysis increased refinance activity by about $50 billion. Based on these calculations, Freddie Mac revised its 1-4 family mortgage originations estimate for 2016 up by $50 billion to $1.70 trillion.
January 9, 2016
by Dan Green
After a brief, 1-week burst higher, current mortgage rates are back below 4%.
According to Freddie Mac's weekly survey of more than 100 mortgage lenders nationwide, conventional 30-year fixed rate mortgages dropped 4 basis points (0.04%) last week from the week prior.
30-year conventional mortgage rates now average 3.97% nationwide for borrowers willing to pay 0.6 discount points at closing.
Different from the 30-year loan, mortgage rates for the conventional 15-year fixed-rate mortgage rose 2 basis points (0.02%) last week to reach an average 3.26% nationwide with an accompanying 0.5 discount points.
5-year ARM mortgage rates also climbed, moving 1 basis point (0.01%) to 3.09%.
However, if you're looking for today's lowest possible rates, you may want to revisit the VA loan. VA mortgage rates are the lowest available.
With today's low mortgage rates, home buyers can purchase more house. Plus, the more-than-6.5-million households potentially eligible to refinance could lock-in large, long-term savings.
It's an excellent time to comparison shop your home loan.
Click to see today's rates (Jan 9th, 2016)
It's been a bumpy few months for mortgage rate shoppers.
Freddie Mac's weekly mortgage rate survey shows a 4 basis point (0.04%) decrease in the average 30-year fixed rate interest rate to 3.97% nationwide.
The decrease pulls the 30-year rate back below four percent (where it lived for only one week) and makes it easier for buyers and refinancing households to get mortgage-qualified.
As compared to last year, rates are higher by 24 basis points (0.24%), raising borrowing costs by $13 per $100,000 borrowed. Combine this with last year's average home price increase of more than five percent, and today's homes are less affordable to buyers than they were a year ago.
The size of a home downpayment-- even when using a low-downpayment loan such as Fannie Mae's 3% down HomeReady™ mortgage -- increases as the value of a home increases. This means you need to save more money to buy the same home.
Add in the cost of closing fees and buying a home can be downright expensive. Thankfully, mortgage lenders make zero-closing cost mortgages available to borrowers who ask.
A zero-closing cost mortgage is a mortgage for which all closing costs are paid by the lender.
In general, a $250,000 mortgage can be converted to "zero-closing cost" by adding a quarter-percentage point increase to the interest rate.
Doing a zero-closing mortgage adds approximately $15 to a monthly payment for every $100,000 borrowed. The amount saved will depend on your closing costs, which vary by state.
Note, though, that you may be eligible for lower rates than what Freddie Mac's survey reports. This is because the Freddie Mac survey covers conventional loans only.
Rates for other loan types, including VA, USDA, FHA, and jumbo loans are different from Freddie Mac's survey -- and they're typically lower.
VA mortgage rates are currently three-eighths of a percentage point (0.375%) lower than a comparable loan via Fannie Mac or Freddie Mac, and rates for FHA loans beat conventional loans, too.
The typical FHA mortgage rate is now roughly 12.5 basis points (0.125%) below the conventional rate and, for homeowners with credit scores below 740, the FHA loan may be a better option low-downpayment option as compared to the Conventional 97.
FHA mortgage insurance premiums (MIP) were lowered earlier this year to help with home affordability.
In November of this year, 30-year mortgage rates put together their worst one-month performance since late-2013. Borrowers are still feeling some of those effects.
Higher rates through that month brought higher monthly payments and higher payments cause a borrower's debt-to-income (DTI) to increase.
An increase to your DTI can make it tougher to get approved on a home loan; or, to qualify for a home loan refinance.
Debt-to-income calculations are among the most important pieces of a mortgage approval.
When mortgage rates rise, it also lowers a buyer's maximum home purchase price. This is because the buyer becomes restricted by payment and must lower its mortgage size in order to keep the same monthly payment.
Use our 3-in-1-mortgage calculator to calculate your payment.
During the last week of October, for example, a $1,391 payment would cover a mortgage for $300,000. Today, with mortgage rates up close to one-quarter percentage point, that same loan costs $1,427 per month, plus taxes and hazard insurance.
For every one percentage point increase in mortgage rates, a buyer's maximum home purchase price falls by approximately 11 percent.
Today's interest rates are back below 4 percent, but don't wait to see what happens next. Take a look at today's live mortgage rates and see what's possible for your home and your loan,.
Brecht March 3, 2015 U.S. News Money
If you've got the itch to ditch
your landlord and take the leap
to homeownership, mortgage rates are still low by historical standards.
But beware because they are expected to begin creeping higher throughout the
"The cost of renting is
really high right now. Rents have been rising and rising," says Lawrence
Yun, chief economist at the National Association of Realtors. "Renters are
getting squeezed, and some want to convert to ownership.".
The NAR expects 30-year,
fixed-rate mortgages to average 3.80 percent in the first quarter. However,
mortgage rates are forecast to start inching higher throughout the year. The
NAR forecasts an average 4 percent rate in the second quarter, 4.3 percent in
the third quarter and 4.7 percent in the fourth quarter.
Economic forces, including an
improving U.S. labor market and faster economic growth, are conspiring to push
mortgage rates higher this year. "The Federal Reserve is likely to
raise short-term interest rates in the summer, which will be a signal for the
rest of the market for rates to go higher," Yun says.
"There's a window of
opportunity for buying and refinancing at crazy-low rates, but it's
closing," says Gina Pogol, loan expert at Charlotte, North Carolina-based
If this is the year you want to
sign on the dotted line and become a homeowner, experts have several suggestions
to help you move quickly through the mortgage approval process.
The overall lending environment
remains stringent, and the best mortgage rates will be awarded to those with higher
credit scores. Your credit score is a three-digit number generated
using information on your credit report, and generally, the higher it is, the
better. Here's what you need to do to get the best rates.
Mind your credit score. "Minimum credit scores required by lenders have steadily dropped, and
mortgage insurers' underwriting guidelines have also loosened a bit, but it's
still a little tough," Pogol says. "Average FICOs of applicants
approved for home loans continue to come down, but they're still hovering
around the 700 mark. Unfortunately, three-fourths of U.S. consumers have scores
lower than 700."
What's an ideal credit
score? "To get the best rate, strive for above 740. That is the benchmark
for A-plus lending," says Jeannie Meronk, assistant vice president and
mortgage loan officer at First State Bank of Illinois.
Visit your lender before you
hit the open houses. Create a game plan that makes
sense for your budget. It pays to talk to a lender about what
you can afford and qualify for before you fall in love with a home
outside your price range.
"It is really important from
a budget standpoint to be shopping in the right price range," Meronk says.
Just because you qualify for a
certain loan amount doesn't mean that is what you should spend. Consider your
monthly budget, and determine what level of monthly payment feels comfortable.
Remember that there will be other costs relating to homeownership, including
property taxes, maintenance and unexpected repairs.
Also know that most sellers
won't take an offer seriously unless you have been preapproved for a
loan. "Preapproval means actually applying for a loan, having your
credit checked and your income documented. Preapproved means that as long as
the property meets the lender's requirements, you can close," Pogol says.
Don't make any changes to your
financial picture. Once you've been preapproved,
this is not the time to open new credit cards, change jobs, transfer large sums
of money or make big-ticket purchases using credit. "Once you are
preapproved, don't apply for any new credit. If you go ahead and finance furniture,
it can mess up the amount that you were preapproved for," Meronk says.
If you are fortunate enough to
have a parent, in-law or relative
who is willing to gift you some or all of your intended
down payment, be sure to talk with your lender about this. You will need
to document this properly with a letter for your lender.
If you are thinking of buying a
rental property, however, gift money can't be used toward a down
payment. It only can be used for a primary residence, according to Meronk.
If you are self-employed,
expect to jump through more hoops. Be
prepared to provide two years' worth of tax
returns. If your income fluctuated from one year to the next,
underwriters will average the income from the two years. Also, underwriters
will look at your income after your business deductions have been taken.
"It often comes as a
surprise to self-employed applicants that their gross income isn't counted by
underwriters. It's their taxable income that's used. So if you write off every
meal and every vacation as a business expense, that comes off the top of your
income," Pogol says.
Organize your financial
paperwork and keep it up to date. If you are shopping for a home, keep a file and drop in new documents as
you receive them, including your most recent pay stub and all pages of your
"Many times applications
sit on mortgage processors' desks because the borrowers have not supplied
everything necessary to get the file into underwriting. If an underwriter needs
additional information or documents, get that in as quickly as possible. In a
busy office, every time your application needs something else, it may be moved
to the bottom of a pile and not resurface for days," Pogol says.
Call your insurance company. Before you close, you will
need to procure a home
insurance policy. "You need to call your insurance agent and tell
them you are buying a house. You need to secure a first year's home insurance
policy before closing. Until I get your homeowners insurance amount, I can't
tell you the exact amount of your payment," Meronk says.