Tag Archives for " Rates "
In spite of falling interest rates and low home pricing, sales hit a 14-year low this year. Analysts project home sales for 2011 to fall short about one million homes from what would indicate a healthy market. The median sales price since the same time last year dropped five percent, bringing the median down to roughly $163 thousand dollars. Although first time home buyers have slightly increased to 36%, that is still 4% below what is considered an indication to recovery.
A backlog of foreclosures and government regulations have prevented the flooding of the housing market to avoid flooding housing inventory and further decreasing pricing. 2011 is expected to bring 20 percent more homes lost to foreclosures over the previous year. As the home market inventory increased to just under 4 million homes, an equal increase in demand has not been the case. The time expected to sell home inventory has increased 33 percent, going from six months to over nine. Consumer knowledge of increasing foreclosures may lead to hesitation on purchases in anticipation of further depreciation.
Home mortgage interest rates have fallen .02 percent on a both 30 and 15 year loans since late last year, but have not been enough to signal a healthy housing market recovery.
September 15, 2011 – Already at an all-time low, fixed-rate mortgage numbers continue to plummet, having declined by almost 50 percent over the past 10 years.
Freddie Mac announced today the results of its weekly Primary Mortgage Market Survey, which show that fixed mortgage rates remain at their lowest levels in 60 years. The rate for a 30-year fixed mortgage sunk to 4.09 percent, while a 15-year fixed rate now sits at 3.30 percent – both numbers signifying record lows since Freddie Mac began tracking the rates in 1971.
These rates are in their second consecutive week of such declines. Experts cite European financial woes as the source.
“Continued investor concerns over the state of the European debt markets kept U.S. Treasury bond yields low and allowed mortgage rates to ease once more this week,” Vice President and Chief Economist for Freddie Mac Frank Nothaft said.
The 30-year rate has stayed below five percent for the entire past year, except for two weeks. Five years ago, the rate was 6.5 percent, and 10 years ago it was eight percent. The lowest rates in U.S. history were in 1950-51, when the long-term fixed-rate mortgages hit 4.08 percent – notably only .01 percent lower than this week’s average rate.
In spite of historically low rates, the housing industry continues to suffer, with new home sales at their worst in the last half-century and re-sales hitting 14-year lows as well. Freddie Mac attributes this to the fact that rates often come with additional fees that make them higher than they seem. After fees, the 30-year rates are actually closer to 4.25 percent.
The Federal Reserve Board and the Federal Open Market Committee (FOMC) met on November 1-2 to review the economic trends of 2011’s third quarter and to discuss future economic projections.
The FOMC press release revealed that economic growth rose slightly between this quarter and last, suggesting the country had shrugged off some of the negative factors weighing the economy down.
It was also mentioned that despite the fact that unemployment remains high and the housing market is still in a slump, household spending has increased and business investments have been on the rise.
But the FOMC is hoping to bolster the economy further in the upcoming quarter. As a result, employment and price stability have been pushed to the forefront of the FOMC’s attention.
The FOMC expects the unemployment rate to decline in the upcoming years, and come closer to levels on par with their long-term goal—around five percent.
They anticipate that inflation rates will settle at levels at or below the FOMC’s long-term goal, but it was announced interest rates would receive their close attention and monitoring.
In a conscious attempt to keep inflation rates low, strengthen personal and commercial investment ability and, ultimately, improve the job market, the FOMC said they will keep the federal funds rate at low levels.
The federal funds rate is the rate at which banks receive money from the government, and have a direct impact on loans’ interest rates for the public.
The target the FOMC seeks to keep federal fund rates at lies somewhere between 0 and 1/4 percent, and rates are expected to remain at these extremely low levels until the middle of 2013.
This is the fourth week in a row that 30-year fixed rates have averaged at or below 4 percent, according to a Freddie Mac press release.
Freddie Mac’s Weekly Primary Mortgage Market Survey (PMMS) reports that the rate for fixed rate mortgages averaged at 3.98 percent this week. When compared to this time last year, that is down by nearly 0.50 percent.
The average 15-year fixed mortgage rate is at 3.30 percent. That’s down 0.53 percent from this time last year.
Both 30- and 15-year fixed mortgages carried an average of 0.7 points.
While fixed mortgage rates hover around their historic low numbers, the PMMS reveals good news for adjustable-rate mortgages (ARMs) as well, as they hit record breaking lows this week. The 5-year Treasury-indexed hybrid ARM averaged at 2.91 percent, and the 1-year ARM averaged at 2.79 percent. Both had an average of 0.6 points.
These recent low rates have caused a small uptick in home purchases, as this buyer’s market is unlike any we have seen in years. The positive impact this has had on the housing market was commented on by Freddie Mac’s vice president Frank Nothaft. He explained “The high-degree of home-buyer affordability in recent months translated into a 1.4 percent pickup in existing home sales during October, according to the National Association of Realtors.”
However, the Mortgage Bankers Association (MBA) reports that uptick in October hasn’t maintained its momentum, as mortgage applications have dropped 1.2 percent last week when compared to the previous week.
Michael Fratantoni, the MBA’s vice president of research and economics elaborated on this slowdown by explaining that “purchase activity remains almost 5 percent below last year’s level.”
Wells Fargo announced Thursday that they will be offering lower interest rates on student loans. But their rates are still nearly half a percent higher than federal student loans.
As reported by The Associated Press, Wells Fargo’s basic undergraduate student loan rates dropped from 7.75 percent to 7.24 percent. That decrease is significant, but doesn’t even come close to 6.8 percent federal loan boast.
The new, lower rate is also only available to those with pristine credit scores. For those students (or parents) who have bad credit, the bank’s loans can carry rates of nearly 14 percent.
Aside from rate differences, though, private student loans continue to pale in comparison to federal loans since they lack the benefits the government-backed forms of financing come with. One of those benefits federal loans continue to entice borrowers with private loans miss out on is the forgiveness of all student debt after 25 years—or just 10 years if a student becomes a public service worker.
But Wells Fargo is clearly making efforts to alleviate their pained borrowers. They also announced a reduction of 0.25 percent to 0.51 percent on existing fixed rates for financing used for community college, used by a borrower with a career, held by parents, and for consolidation loans.
Additionally, if borrowers are eligible for a San Francisco bank note, they may be able to receive an additional rate reduction. Wells Fargo loan holders can receive up to a 0.50 percent reduction on new loans through the San Francisco notes, according to The Associated Press.
With the emergence of two recent (but separate) Occupy Student Debt movements, this may be an attempt to begin winning back public affection.
This week marks yet another record breaking anniversary for mortgage loan interest rates. Freddie Mac reported that the 30-year fixed rate dropped from the previous record of 3.89 percent to 3.88 percent—breaking the historic floor for the eighth time in a single year.
Extraordinarily low rates such as this present extremely lucrative deals for willing and able homebuyers. Those in the market for a refinance are also in a great position to reduce their monthly payments and cut back on the amount of interest they will owe over the lifetime of their mortgage loan.
While these low rates draw applaud from many market analysts, Freddie Mac’s chief vice president, Frank Nothaft, made a statement that may suggest a reason for concern over the housing market.
Nobody Can Take Advantage
Despite this being the eighth time the floor has shattered on home loan rates, real estate sales have remained stagnant and slow moving.
“On the consumer front, retail sales edged up only 0.1 percent in December,” said Nothaft in a Freddie Mac press release.
Even though historic deals are presenting themselves, would-be buyers are few and far between as high unemployment and underemployment are keeping potential home loan borrowers at bay.
In addition to the lack of funds resulting from the nation’s poor job climate, a significant portion of the buying population has been removed from the market. Those who experienced foreclosure in the recent past are blacklisted from obtaining a home loan and participating in this buyer’s market. Whether they’re shunned due to a crippled credit score or because lenders are adhering to Freddie Mac’s seven year lock-out on homeowners who foreclosed, past defaulters are forced to sit idle and watch these deals pass by—even if they’re willing to buy right now.
Construction Industry’s Health
Nothaft also revealed that construction is slower than previously expected—raising alarm in the nation’s housing-start industry.
“On the business side, industrial production rose 0.4 percent in December, slightly below the market consensus forecast,” said Nothaft.
Once a prosperous industry, construction quickly became one riddled with lay-offs and lack of business following the great economic fall of 2007. Until the job market bounces back, prompting new business creation and demand for commercial buildings, this blue-collared industry will remain in a slump.
However, commercial construction’s counterpart, housing, has experienced a slight rise.
“On the home construction front, builder confidence rose for the fourth consecutive month in January to the highest level since June 2007.”
The morale of home construction professionals is reason to carry an optimistic view of the housing market’s health. Hopefully this eighth historic low in mortgage loan rates will prompt even more demand, and thus increase the supplier’s business—prompting a financial chain reaction that will ignite fuses across the entire economic market.
Unless Congress acts very soon, the interest rates assigned to federal student loans are scheduled to double this summer.
Due to a 2007 law that enacted interest rate reductions for undergraduate subsidized Stafford loans, government-backed student financing is currently offered at an interest rate of 3.4 percent. But that law is scheduled to expire this year, which will result in the interest rate doubling, propelling them to a level that hasn’t been seen since 2007: a discouraging 6.8 percent.
In Tuesday’s presidential State of the Union address, President Obama tried to encourage lawmakers to consider and act on this issue. But, as of now, Congress has yet to acknowledge it, and may be apprehensive to extend the rate reduction since passing such a law again would cost the country $5.6 billion a year, according Mark Kantrowitz of FinAid.Org in a CNN Money article.
In fact, in the recent past Congress has already eliminated federally subsidized student loans for graduate students, and cut $8 billion out of the Pell Grant program that helped low-income students fund their education.
“[Since] Congress just passed legislation cutting student financial aid funding, it’s unlikely they’ll pass legislation increasing student aid funding,” said Kantrowitz, according to CNN Money.
Setting aside Congress’s recent voting record pertaining to the student loan industry, another factor that may be pushing their votes away is the fact that President’s Obama’s additional proposals included with this rate-reducing law would total to at least $10 billion a year.
But in the wake of student loan protests, letting the rate hike occur could prove to be detrimental to the country’s morale.
“In this tough economy, people are concerned about the cost of college and the burden of debt to follow,” Lauren Asher, president of the Project on Student Debt, told CNN Money.
Two-thirds of students graduated in 2010 with an average student loan debt of $25,000. If the rate hike occurs, students can expect to pay an additional $5,000 over a 10 year period, said Ascher.
Due to the current trend of borrowers keeping current on their vehicle financing, lenders are charging auto loan borrowers at the lowest interest rates seen in t he past four years, according to Experian Automotive.
The average interest rate for new vehicle car loans fell to 4.52 percent in the fourth quarter of 2011, bringing the average rate to the lowest point since Experian began monitoring average auto loan rates back in 2008. One year earlier at the same time, the average rate was 4.84 percent.
Experts believe this rate is continuing to drop due to the fact that car financing lenders have seen surprisingly few defaults.
“Lenders are clearly on much more solid ground than they were two or three years ago,” said Melinda Zabritski, Experian’s director of automotive lending, in a press release. “With delinquencies and total dollar volume at risk down, lenders have been able to adopt more aggressive strategies.”
Those aggressive strategies include lending to subprime borrowers—something few lenders in other industries would be willing to do given the problems subprime lending caused in the housing market.
The auto loan industry saw a 13.8 percent increase in financing to nonprime, subprime and deep subprime customers in the fourth quarter of 2011.
“The confluence of low interest rates, longer loan terms and an increase in loans outside of prime provide a great opportunity for more people to find a vehicle that suits their needs,” said Zabritski. “With more lenders aggressively competing for business, it’s a great time for consumers to buy or finance a vehicle.”
Lenders willingness to provide subprime borrowers with car loans produces positive results not only for individual borrowers seeking a new vehicle, but also the economy as a whole since many subprime borrowers were victims of the failed housing market, and are, in reality, not real credit risks.
Unless Congress acts soon, students will see the interest rate on federally subsidized Stafford loans increase from 3.4 percent to 6.8 percent. This doubling of student loan interest rates will be the result of legislation setting an interest rate cap expiring come July of this year.
If the interest rate of student loans doubles, those paying for their college career with federal financing will see a massive uptick in their monthly bills. Worry over this surge in price has prompted more than 130,000 letters to be mailed to Congress, pleading the government to stop the interest rate legislation from expiring.
“I will be put back into buying a house and saving up for my expenses later on in life, and life as we know, is very unexpected. Adding that variable [doubled interest rates] definitely limits my ability to be successful,” said Tyler Dowden, an 18-year-old freshman at Northern Arizona University, in a press conference.
According to the Michigan-based news source M-Live, Jennifer Mishory, a director for a non-profit aimed at representing people between the ages of 18 and 34, says the possibility of a rate hike is a huge problem. She claims that many students are already struggling to pay back their student loans, and this rate hike will only hinder their efforts further.
But despite student’s cries, house representatives are not facing an easy decision.
Rep. John Kline, R-Minn., chairman of the House Education and the Workforce Committee, told The Associated Press the interest rate increase is the “result of a ticking time bomb set by Democrats five years ago.” Referencing legislation passed in 2007 that artificially lowered rates for federal student loans to 3.4 percent, he warns that somebody is going to have to pay the bill.
“We must either allow interest rates to rise on student loans, or stick taxpayers with another multi-billion dollar bill,” explained Jennifer Allen, a spokeswoman for Kline, in an email to The AP.
The cost for keeping rates so low is right around $6 billion every year.
Whoever receives the brunt of this interest rate bill is not going to be happy. If the rate reduction continues, the general public, many of whom are suffering from a slumped economy, would be forced to shoulder yet another financial blow. If it subsides, the nation’s students will suffer through more expensive student loan bills.
At their highest point in five months, the average interest rate for a 30-year mortgage loan increased to 4.08 percent. Last week, the average rested at 3.92 percent, meaning rates rose by an alarming 0.16 percent in just a week’s time.
The 30-year average is the highest since Oct. 27, when it hit a height of 4.1 percent.
Home loan applications fell for a sixth week in a row, indicating an enormous slump in the refinancing market.
This refinancing slump is particularly worrying for some since the governments new HARP 2 just went into full affect this month. HARP 2 was supposed to encourage the nation’s underwater mortgage loan holders to refinance their home loans. Instead, however, the nation has entered the largest refinancing dip since November.
But despite these ominous signs, some experts believe there’s no reason to worry.
“The effect of higher rates should be minimal as long as the increases are limited,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto in an interview, according to Bloomberg Businessweek. “Refinancings could take a further hit but they’re up hugely in the past year. I doubt applications for purchases of a home would be affected much. Affordability has never been better.”
Guatieri’s assessment of affordability may be a bit of an exaggeration, but affordability is definitely growing at a steady pace. According to Reuters, the number of new unemployment benefits claims dropped to a four-year low last week, signaling an increase in jobs availability.
The Reuters report stated employers added 227,000 jobs to their payrolls in February, bringing the new job total over the past three months to an encouraging 734,000.
The more accessible jobs are to the American public, the more easily the nation can afford new home loans—even at 4 percent interest rates.