A stumbling economy brings lower mortgage ratesby Tim Manni
But by now most of us are aware of the economy’s persistent issues preventing the real estate market from being anything close to busy, or in other words, normal. Unfortunately for the masses, it is fairly clear that the economy has officially downshifted from a reasonable growth rate at the end of 2010, and present trends don’t suggest any imminent uptick.
So, while a stumbling economy means fewer jobs and fewer dollars to spread around, it also means lower mortgage rates.
No matter the product, mortgage rates are down
As of last week, HSH.com’s Fixed-Rate Mortgage Indicator –a broad-market tracker of fixed-rate mortgages–found that the overall average rate for 30-year fixed-rate mortgages slipped back by two more basis points, landing at an average of 4.88 percent, yet another fresh 2011 low.
FHA-backed 30-year fixed-rate mortgages are a huge attraction for first-time homebuyers, and also give low-equity refinancers an option to pursue. Rates for these products also slipped back by two basis points to finish the week at 4.49 percent.
Given the wide differential in interest rates, at least some borrowers should be considering hybrid 5/1 ARMs, whose five-year fixed periods now average just 3.49 percent, down three hundredths of a percentage point from last week. As we have mentioned before, there certainly are savings to be had for borrowers willing to accept some future interest-rate risk.
Will the economy improve?
The major economic indicators failed to paint a bright picture during the first quarter of this year. Forecasts called for the re-reading of the first quarter Gross Domestic Product (GDP) report. The hope was to show an upward revision from the meager 1.8 percent annualized rate it revealed last month, to perhaps 2.2 percent for the period.
That failed to occur, and the preliminary GDP estimate remained at just 1.8 percent for the first quarter of 2011. Keeping in mind that the first quarter ended some two months ago this week, and rummaging through the various economic indicators which have become available over the last eight weeks, it seems that the second quarter has not improved much (if at all) on that puny pace.
Mortgage rates could still rise, and fast
That said, do not be one of those borrowers who miss your best opportunity to lock in a low rate because you waited too long on the sidelines for mortgage rates to fall. Mortgage rates always rise faster than they fall, so even a minor economic blip could cause rates to shoot upwards.
Furthermore, the end of the Fed’s QE2 program is expected to have some impact on mortgage rates, but analysts just aren’t sure which reaction the markets will have. Will the end of QE2 (towards the end of June) cause mortgage rates to increase or decrease?
There are big bets being placed on both sides. Whatever the case, we will move away from the certainty of the Fed’s involvement and into a less-certain period, at least for a while. At the present time, interest rates are sliding gently as things continue to show signs of slowing. However, more uncertainty brings risk, and risk usually brings higher interest rates.
If you’re ready, act now!
If you’re in the market to purchase a home loan or refinance the one you already have, don’t sleep on these low mortgage rates because you’re waiting for them to fall further. That can be one of the biggest mistakes any potential borrower can make.
While it’s understandable that you want the best deal out there, mortgage rates aren’t falling all that much from week to week, meaning the additional savings are not all that sufficient. If these current mortgage rates work for your budget, act now before they disappear.