Mortgage rates drop on heels of Fed hikes
By JEFF LAZERSON / CONTRIBUTING COLUMNIST
Talk about wrong. Consensus was fixed rates would continue to climb as the Federal Reserve raised short-term rates. Wall Street prime rate now sits at 4 percent.
At minimum, political perceptions are in play. How successful will President Trump be in respect to his healthcare and tax reform agendas for example? If successful, consensus is a more stimulated economy ahead. Consequently, higher rates ahead for both short-term and 30-year fixed rate mortgages were sure to follow to alleviate inflation concerns.
If nothing gets done legislatively, do we see a perception letdown that leads to an economic slowdown? An election day reversal? And, lower fixed rates ahead?
So far, President Trump hasn’t been able to get legislative changes through.
“Healthcare is being used as a proxy as to how successful President (Trump) will be,” said Anthony Chan, chief economist at Chase Bank.
If you are in the market to purchase or refinance, what’s next when it comes to fixed rates? Expectations are a 2 percent GDP.
“It wouldn’t surprise me if rates come down,” said Doug Duncan, chief economist at Fannie Mae. Duncan points to the current first quarter Commerce Department economic growth at 1.25 to 1.5 percent.
Duncan thinks that the 30-year fixed will be volatile this year, averaging 4.20 percent (just 6 basis points higher than this week’s Freddie Mac rate).
Chan cites traditional seasonal factors showing weaker first quarter growth in the past several years with GDP bouncing back later in the year.
“Yields should be heading higher,” he said. “I think rates will reverse and go up.”
Refinancing is down to a trickle.
According to the Mortgage Bankers Association, refinance share of mortgage activity has now decreased to 44 percent of applications, its lowest level since October 2008.
For refinancers, if you missed out on last year’s lower fixed rates, you might want to take another look since we are experiencing this mini-bond rally.
If you have an adjustable-rate mortgage with a rate similar to or higher than todays fixed, or if you have an equity line of credit, consider a fixed to remove any chance of rate volatility. After all, the Fed is making noises about either two or three additional rate increases this year. If you missed the last boat, take this one.
For homebuyers, this current rate dip is certainly a pleasant surprise that will increase your McMansion buying power.
Beltway politicians can’t seem to agree on much of anything, not a blue sky or the price of eggs. I just don’t see fixed mortgage rates moving higher.
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Jeff Lazerson - Mortgage Columnist since 2011