Current Mortgage Rates Are Dropping
Mortgage rates continue to drop.
Since the start of the year, the average 30-year conventional fixed rate mortgage is down more than a half-percentage point, and the 15-year fixed rate mortgage has made similar gains.
Home buyers have more purchasing power than during any period since last May; plus, there are now millions of existing U.S. homeowners who have an opportunity to to a lower mortgage rate.
Rising home values are helping homeowners, too.
As home equity levels increase, there are fewer underwater mortgages nationwide. This has increased the number of the homes eligible for refinance — not everyone is eligible for HARP 2, after all. It’s also helped a myriad of homeowners refinance out of FHA MIP and into a less-costly conventional program.
It’s a favorable time to shop for a home loan. Most lenders now quote rates in the 3s.
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Mortgage Rates Fall Below 4%
According to Freddie Mac’s weekly mortgage rate survey of more than 100 U.S. banks, last week’s 30-year conventional fixed-rate mortgage rate averaged 3.97 percent nationwide.
This week, mortgage rates are even lower.
Since the close of Freddie Mac’s poll last week, the price of mortgage-backed securities have improved. This week’s Freddie Mac survey may not rates near 3.75%, but plenty of mortgage applicants report getting access to rates that low. Many U.S. banks now quote rates in the mid-3s with equally-low APRs.
Conventional mortgage interest rates are their lowest since late-May-June 2013 and are well below their levels from the start of the year.
Mortgage rates for FHA loans and VA loans are even lower.
For most of 2014, have priced below conventional mortgage rates by about one-quarter percentage point (0.25%). This has helped home buyers using the FHA’s 3.5% downpayment minimum to get into a home; and refinancing FHA homeowners using the .
With mortgage rates down, hundreds of thousands of FHA-backed homeowners are meeting the program’s Net Tangible Benefit requirement, which is making home refinancing possible.
The same is true for VA loans.
VA mortgage rates undercut rates on conventional loans by approximately 0.375% and low mortgage rates have helped additional VA-backed homeowners qualify for the Department of Veterans Affairs’ Interest Rate Reduction Refinance Loan ().
The IRRRL program, which is also known as the VA Streamline Refinance, is in high demand among military borrowers nationwide.
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Reasons For Falling Mortgage Rates
This year’s falling mortgage rates have been a surprise to Wall Street and economists, in general. Mortgage rates were expected to climb toward five percent or higher this year because the Federal Reserve was ending its third round of quantitative easing (QE3).
The opposite has happened instead.
As the Federal Reserve has reduced its involvement in the mortgage-backed securities (MBS) market by $35 billion monthly over the last nine months, and made plans to terminate QE3 with a final $5 billion QE3 reduction later this month, mortgage rates have dropped.
This week’s average conventional 30-year fixed rate mortgage rate expected to show a half-point drop as compared to January 1; and, with 15-year rates expected to show a similar range of improvement.
So how did so many “experts” get it wrong on this ? The answer is the same as always: It’s not the events we expect which cause mortgage rates to move — it’s the events we don’t.
As fast as the Federal Reserve is pulling out of MBS, global investors are pouring in. A few reasons why include the following.
Weakening Global Economies
At the start of the year, there were signs of weakness in China’s economy and the economy of the Eurozone. As the year has progressed, however, those signs of weakness have amplified.
Dragged down by its housing market, the broader Chinese economy has underperformed while the Eurozone economy may be headed toward recession.
Neither outcome was expected 10 months ago and pessimism is growing among economists and consumers. This shift in sentiment has prompted investors to seek “safe” investments during this period of uncertainty — an asset class which include U.S. mortgage-backed securities.
It’s a well-known trading pattern known as flight-to-quality and, so long as global economies remain weak, mortgage rates will benefit.
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Conflict, War, and The Ebola Virus
It’s not just “weak economies” which can stoke a flight-to-quality — strife and disease can do the same and, since the start of January, there’s been a bevy of headlines which have helped to drag U.S. mortgage rates down.
In addition to the political events surrounding Russia and Ukraine, there has been ongoing armed conflict between Palestine and Israel; and in Syria and Iraq.
Furthermore, recently, there has been growing concern about the Ebola virus and its potential to disrupt world economies.
War and sickness create uncertainty which can push investors toward safer asset classes. Mortgage rates have been lower, in part, because of the flight-to-quality these events have sparked.
Low Inflation Rates
A third reason why mortgage rates have dropped through 2014 is that inflation rates have not increased as expected. Inflation is the enemy of low mortgage rates. It follows, then, that the absence of inflation is good for low mortgage rates.
“Inflation” is the rate at which the U.S. dollar loses its purchasing power. When inflation rates rise, the dollar buys fewer goods and services and, when inflation rates drop, the dollar can buy more goods and services.
Because mortgage-backed securities are priced in U.S. dollars, inflation’s link to mortgage rates is fairly straight-forward.
When inflation rates rise, the value of owning a mortgage-backed bond drops because bond payments have less value to the holder. In response, bond holders sell their MBS which increases the market supply and leads bond prices lower.
When bond prices drop, mortgage rates rise.
Conversely, when inflation rates drop, the value of a mortgage bond grows and that’s exactly what we’ve seen through the first three quarters of this year.
Inflation rates remain firmly below the Federal Reserve’s 2% target rate despite a near-zero percent Fed Funds Rate, an improving U.S. economy, and the huge stimulus provided by QE3.
With inflation rates low, mortgage rates drop.
Get Today’s Mortgage Rates Now
Mortgage rates are at a 17-month best and may be headed lower into 2015. However, you won’t want to wait to see how low rates might go. One unexpected event could reverse rates higher — just as unexpected events have pushed rates down.
So, get a live rate quote now. Rates are available online at no cost, with no social security number required to get started, and with no obligation to move forward whatsoever.
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