US long-term mortgage rates slip; 30-year average at 4.06%

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U.S. long-term mortgage rates fell slightly this week, marking a fourth straight week of declines to lure prospective purchasers in the spring homebuying season.

Mortgage buyer Freddie Mac said Thursday the average rate on the 30-year, fixed-rate mortgage slipped to 4.06% from 4.07% last week. By contrast, a year ago the benchmark rate stood at 4.66%.

The average rate for 15-year, fixed-rate home loans declined this week to 3.51% from 3.53% last week.

With mortgage rates at historically low levels, prospective homebuyers have been rushing in. Applications for mortgage loans jumped 2.4% in the week ended May 17 from a week earlier, according to the Mortgage Bankers Association.

Freddie Mac surveys lenders across the country between Monday and Wednesday each week to compile its mortgage rate figures.

The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates.

The average fee on 30-year fixed-rate mortgages was unchanged this week at 0.5 point.

The average fee for the 15-year mortgage held at 0.4 point.

The average rate for five-year adjustable-rate mortgages rose to 3.68% from 3.66% last week. The fee remained at 0.4 point.

~The Associated Press

2019 Homebuyer Forecast ~ Update

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On Tuesday, Realtor.com issued a revised forecast projecting a more robust market than originally predicted through the remainder of the year.

As mortgage rates fall and more homes hit the market, realtor.com has updated its homebuying forecast for the end of 2019. While the original forecast predicted mortgage rates to reach 5.5 percent by the end of the year, the adjusted forecast indicates rates will likely peak at 4.5 percent. The number of home sales, meanwhile, will experience a much smaller drop than initially forecasted. Realtor.com expects them to drop by only 0.3 percent instead of 2 percent.

“The 2019 housing market is different than what we predicted in fall 2018, primarily due to an unexpected drop in mortgage rates in January 2019,” said realtor.com Chief Economist Danielle Hale in a prepared statement.

Courtesy of Realtor.com

Home prices are the only metric not predicted to experience a shift toward affordability. Realtor.com predicts prices will grow by 2.9 percent instead of the original 2.2 percent. But overall, the anticipated slowdown in sales is not likely to take place. With lower mortgage rates, more homes are expected to trade hands than originally predicted.

“We believe 2019 will be characterized by lower, but still increasing mortgage rates that will buoy home prices and sales by boosting buyers’ purchasing power beyond what we initially projected,” Hale said. “This will create a slightly hotter, but still cooling housing market relative to the initial forecast five months ago.”

Veronika  Bondarenko,  Inman

How Interest Rates Affect Buying Power

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Whether you are thinking about buying or selling a home, interest rate trends are an important factor to consider. Mortgage interest rates have been rising and experts, including Windermere Chief Economist Matthew Gardner, predict that they will continue to increase in 2019.

Interest Rates and Buying Power

The chart below shows the impact rising interest rates would have if you planned to purchase a $675,000 home while keeping your principal and interest payments at $3,500 a month.

purchasing-power-chart

Every time interest rates increase by a quarter of a percent, your buying power decreases by about 3 percent.

What this means for buyers:
With prices moderating and interest rates slated to rise again, now is a good time to buy. If you’re betting on prices falling, you need to consider the strong possibility that an increase in interest rates would offset any potential price savings.

What this means for sellers:
Listing your home now means you will attract a larger buyer pool before interest rates rise.

How will US real estate be affected by Brexit?

Chief Economist for Windermere Real Estate, Matthew Gardner, who just happens to be British, gives his opinion on the impact of Brexit on the U.S.:

The decision of the British public to leave the European Union is a historic one for many reasons, not least of which was the almost uniform belief that there was absolutely no way that the public would vote to dissolve a partnership that had been in existence since the UK became a member nation back in 1973. However, rightly or not, the people decided that it was time to leave.

As both an economist, and native of the UK, I’ve been bombarded with questions from people about what impact Brexit will have on the global economy and U.S. housing market. I’ll start with the economy.

Since last Thursday’s announcement, there have been exceptional ripples around the global economy that were felt here in the U.S. too. This isn’t all that surprising given that the vast majority of us believed that the UK would vote to remain in the EU; however, I believe things will start to settle down as soon as the smoke clears. The only problem is that the smoke remains remarkably dense.

The British government does not appear to be in any hurry to invoke Article 50 of the Lisbon Treaty, which allows a member country to leave the conglomerate. Additionally, nobody appears able to provide any definitive data as to what the effect of the UK leaving will really have on the European or global economies.

As a result, you have those who suggest that it will lead to a “modest” recession in the UK, as well as extremists who are forecasting a return of the 4-horsemen of the apocalypse. But in reality, no one really knows, and it is that type of uncertainty that feeds on itself and can cause wild fluctuations in the market.

It’s important to understand that last Thursday’s vote does not confirm an actual exit from the European Union. There is a prolonged process of leaving that is set out in the EU Treaty which requires a “cooling off” period. And during this time, even confident political leaders, such as Boris Johnson who championed the exit campaign, might be tempted by reforms that would see Great Britain actually remaining in the EU.

The EU itself has been shaken by the vote, and there are already signs that many of its leaders are talking about moving away from the Federal structure of the Union in favor of a looser, intergovernmental agreement, that would allow greater sovereignty for its member states.

This is clearly an obvious attempt to accommodate what is already a groundswell of opposition to the Union that is much wider than just Britain, and now includes France, Spain, Greece and Portugal, all of whom are considering their own exits.

So what does this mean for the U.S.?

As far as any direct impact of the Brexit on the U.S. economy is concerned, I foresee a continued period of volatility given the aforementioned uncertainty. That said, any predictable effects on the U.S. will be limited to a “headwind” to growth, but not enough to drive us into a recession. Our financial system is solid and U.S. exposure to European debt is still limited. I wouldn’t be surprised to see a slowdown in U.S. exports as the dollar continues to gain strength against European currencies, but those effects will be fairly modest.

As for the impact on housing, U.S. real estate markets could actually benefit. Uncertain economic times almost always lead to a “flight to safety”, which means global capital could pour into the United States bond market at an aggressive rate. With this capital injection, the interest rate on bonds would be driven down, resulting in a drop on mortgage rates. And a drop in mortgage rates makes it cheaper to borrow money to buy a home.

On the flip side, one thing that concerns me about lower interest rates is that it could draw more buyers into the market, compounding already competitive conditions, and driving up home prices. And housing affordability would inevitably take yet another hit.

Let’s not fool ourselves; what we’re seeing is a divorce between the UK and a majority of Europe. And like most divorces, there are no good decisions that will make everybody happy. We need to be prepared for the fact that it is going to be a very ugly, nasty, brutal, lawyer-riddled, expensive divorce.

My biggest concern for the U.S. is that the Federal Reserve must now pause in its desire to raise interest rates (I now believe that we will not see another increase this year as a result of Brexit). This is troubling because we need to normalize rates in preparation for a recession that is surely on the way in the next couple of years. The longer we put that off, the less prepared we will be when our economy eventually turns down.

~ Mathew Gardner, Chief Economist Windermere Real Estate

What’s happening with mortgage rates?

According to the Associated Press, nationwide average for a 30-year mortgage declined to its lowest level since May 2013

Average long-term mortgage rates in the United States fell for the fourth consecutive week, a continuing boon for potential home buyers, and the number of people seeking unemployment benefits slipped below 300,000 last week, according to data released on Thursday.

The mortgage company Freddie Mac said the nationwide average for a 30-year mortgage declined to 3.89 percent this week, from 3.97 percent last week. It is now at its lowest level since May 2013.

Weekly applications for unemployment benefits fell 17,000 to a seasonally adjusted 297,000, the Labor Department reported. Applications spiked in the previous week for the first time in nearly three months. The four-week average, a less volatile measure, rose 4,750 to 299,000 for last week.

Applications for benefits are a proxy for layoffs. As fewer people seek unemployment benefits, it suggests that employers are holding onto more workers and potentially looking to bolster their hiring.

Applications have been under 300,000 for 11 of the last 12 weeks, an unusually low level that suggests employers are anticipating stronger economic growth. The four-week average for jobless claims has plummeted 9 percent over the last 12 months.

Such sharp declines in applications are unlikely to continue, analysts said. But at sub-300,000 levels, they point to better job gains in the Labor Department’s employment report, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“The trend probably has now flattened off, but at an extraordinarily low level, consistent with very strong payroll numbers,” Mr. Shepherdson said.

The November jobs report scheduled to be released on Friday is expected to show gains of 225,000 last month, according to the data firm FactSet.

Mortgage rates are about a half-point lower than at the beginning of the year, when the benchmark 30-year rate stood at 4.53 percent. Rates have fallen in recent weeks in the face of slowdowns in Europe and China and the start of a recession in Japan.

Mortgage rates have been falling despite the recent end of the Federal Reserve’s monthly bond purchases, which were intended to keep long-term rates low.