Mortgage rates continue to rise, but far from normalby Tim Manni
After the markets experienced such devastating declines after the housing market crashed, countless discussions ensued about “when will we return to ‘normal’?” There are two schools of thought when it comes to the markets attaining a degree of normalcy. Either markets have a long way to go to become “normal” once again (regaining levels prior to the crash), or they must establish a “new normal” based on current market conditions and expectations.
For factors like home prices, which never experienced a national decline until the market crashed a few years back (sending millions of homeowners’ equity out the window), the expectation is that prices need to regain those levels to make it back to normal and to salvage all those investments (underwater homes). As far as mortgage rates go, numerous government programs as well as economic hardships established a “new normal” range for rates to wander in over the last few years.
Yet as we see those federal initiatives fade and as we get a handle on an improving economy (albeit slowly), we’re beginning to see mortgage rates break away from the “new normal” and back towards plain old normal.
Mortgage rates on the rise
Rising mortgage rates tend to trigger alarms and worry amongst potential borrowers who are determining their individual level of affordability. The truth is, despite the current trend of rising rates, we’re still far from normal. Furthermore, this current run-up in mortgage rates isn’t even as bad as the one we experienced in October-December 2010. Here’s a graph that illustrates that fact:
According to the latest issue of our Market Trends Newsletter, mortgage rates increased to multi-month highs last week:
HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages increased by another 16 basis points, rising to an average 5.33%. Along with conforming mortgages, FHA-backed 30-year FRMs are a considerable and crucial part of the first-time homebuying market. These self-insured loans jumped up by a full twenty basis points (.20%) to finish the week at 4.99%. Borrowers (especially jumbo borrower) looking for an alternative to the benchmark 30-year FRM might consider a 5/1 Hybrid ARM, which is available at an relatively inexpensive 3.99% for the first five years, also up by 16 basis points from [the week prior].
Consumers: How does the Fannie, Freddie reform affect you?
Well, there’s good news and bad news. For starters, the good news is that whatever strategy is ultimately decided upon, all decision makers pretty much agree that the taxpayer needs greater protection against loss. The bad news is that the cost of obtaining a mortgage is expected to rise and lending conditions are expected to remain strict.
Big changes upcoming for mortgage market
The reform of Fannie and Freddie is still very much in its infantile stage. We’re anticipating at least months if not years of debate and discussion to ensue. However, other sweeping market reforms are set to begin (if they haven’t already) real soon: The Dodd-Frank Bill and the Consumer Financial Protection Bureau.
We’re at an “in-between” phase
We’re currently experiencing an in-between phase in mortgage activity: refinancing has slowed to a crawl and homebuying has yet to pick up. The combination of this lull and the stable nature of the current economic recovery means that mortgage rates shouldn’t rise all that much, but it’s “best to figure on a rise of a few more basis points in the average rates” this week, according to the latest Market Trends Newsletter.
Click here to continue reading “Mortgage rates rise again; GSE reform outline revealed.”