Saturday, June 1, 2013

As the Fed Goes, So Go's the Mortgage Interest Rate Market in Dallas, and throughout Texas


http://www.fedprimerate.com/mortgage_rates.htm#mortgageratehistorychart

Dallas: Mortgage Interest Rates Soar on Fed Speculations



ABC New Wonders if Homeowners have "Time to Refinance."

Mortgage News Daily trumpets "Mortgage Rates Vault Catastrophically Higher"

The Motley Fool reports "Thirty-year fixed-rate mortgages (FRM) and 15-year FRMs both spiked sharply higher on the week, up 22 and 21 basis points, to 3.81% and 2.98%, respectively."

You can see up-to-the-minute mortgage rates on this mortgage rate widget anytime.

On the one hand, it is not a time to panic.  Rates will eventually go up.  When the Fed ends its policy of quantitative easing, interest rates on Treasuries will go up, and mortgage rates will follow.  The historically low rates we have enjoyed for the last few years are artificial.  They have nothing to do with the market, and everything to do with the Fed attempting to stimulate the economy.

The average mortgage rate for a 30 year fixed mortgage is commonly between 5% and 10%, with the 30 year average at 8.6%,  and is likely to go back to those levels in the next year or two.  Check this chart for details.  The graph above shows the 30 year history, and clearly illustrates that we are in a very unusual time for mortgage interest rates.

Here are some takeaways to think about:

  1. Refinancing for a lower interest rate is usually financially attractive if you can save 0.5%.  As rates go up, fewer and fewer homeowners will have a benefit from refinancing, if their goal is to lower interest rates or monthly payments.  
  2. Interest rates are part of the formula that determine affordability.  Therefore with the recent run up in home prices, home affordability has dropped.  If rates increase and home prices stay as they are or continue to climb, affordability will be dramatically effected.  With almost no single family homes for sale in many areas of Dallas and surrounding neighborhoods, the prices are likely to continue up. 
  3. If you are thinking of doing a major home remodel in the Dallas area, and will be using a mortgage to do so, you should move quickly to secure these current low rates. If you are planning to build a new home in Dallas, see your mortgage broker now!  We can help you plan that new home, entire home remodel, or just a kitchen bath or room addition.
We make it a policy to never predict the direction of mortgage interest rates, short or long term.  However, we feel confident that rates will go up, not down over the next few years.  They could easily fall back down to 3.5 - 4% over the next few weeks as the speculation over Fed decisions changes.  Or if the speculation goes more and more towards the Fed ending easing, then rates could go up even more than they have this past week.

There is a very useful saying in finance.  "Never try to guess the bottom."  It is a fool's game.  However, getting your financial house in order near the bottom of this cycle make extremely good sense.

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