Minutes released from the Federal Reserve’s policy meeting held June 22-23 suggest moderate concern about economic recovery. Economic data published subsequent to the release of the Fed minutes added to the concern. What is impacting your mortgage rate as you use a free mortgage payment calculator to determine your potential payments for a purchase or refinance mortgage?
Fed Unsure About Recovery Timing
Investors look to the Fed for direction in interest rates the way teeny-boppers look to Miley Cyrus for direction in fashion. This week, minutes of the Fed’s policy meetings held two weeks ago show a lack of optimism about the timing of full economic recovery–anticipating it to be as long as five to six years before the economy returns to consistent, long term growth. Upon release of the minutes, mortgage rates improved significantly.
Further, the Federal Reserve Governors may have to take action if the economy proves to “worsen appreciably.” With the Federal Discount rate at or near zero percent, the Fed’s remaining possible actions to provide liquidity for the economy might be to buy up more Treasury securities and/or loosen bank lending standards.
Prices And Sales Dip
Continuing the trend of economic data showing a stalled or greatly slowed recovery, retail sales declined for the second month in a row. With consumers purchasing 0.5% less goods in June than May, continuing evidence mounts that Americans are spending less and saving more. With two key price indices, the Producer Price Index and Consumer Price Index, showing minimal movement in June, economic growth has practically paused.
Until data shows consumers are spending again, you can count on low mortgage rates among your free mortgage refinance calculator assumptions.
Weekly Rate Index Holds, But Applications Drop
The number of mortgage applications across the country dropped according to the Mortgage Bankers Association (MBA) Weekly Application survey. Dipping 2.9% on an adjusted basis (taking into consideration the Independence Day holiday), a decline in refinance applications occurred for the first time in several weeks.
Continuing to decline is the number of purchase applications, dropping for the eighth time in nine weeks. The MBA Purchase Index for the week ending July 9th was at its lowest level since December 1996, when the average 30 year fixed rate mortgage was much higher–7.60% at a cost of 1.7 points. According to Freddie Mac’s Weekly Primary Rate Survey for the week ending July 15th, the current average 30 year rate stayed constant at 4.57% at an average cost of 0.7 origination points.
Home Values…Pause
Next week, existing home sales numbers for June will be released, and, given the continuing drop in purchase applications since May, any expectation of major changes, as preceded the May homes sale release, is unfounded.
Consumers and companies are hoarding cash, increasing their savings, and slowing their spending–not just on homes, but also clothes, books, tires and other consumer goods. Leading into May, home values across the country were up from 2009. With the lack of buyers causing sales declines instead of lack of inventory, prices are at risk of sliding off the gains achieved through May.
Timing The Bottom?
If you have been contemplating refinancing and “waiting for the bottom,” you may want to stop waiting. You may lose value on an appraisal that could cost you the opportunity to buy, or put you in a position for loan level pricing adjustments or mortgage insurance due to a higher loan-to-value ratio.
Attempting to time the bottom of a market is akin to believing you are going to win your next hand of blackjack in a casino: You may even be on a good roll and collecting chips, but at some point your streak will end and the dealer will begin to win. You will simply never know when the market has bottomed until it is has already occurred.
Act Now
Use a free mortgage refinance calculator to see if you are able to save on your monthly mortgage payments given current rates and the value of your home, then start processing your application.
With rates staying low and home values flattening or appearing ready to dip again, the market appears to benefit buyers going forward. Keeping up with economic news can help home buyers and home owners with their decisions as to whether and when to purchase their new home or refinance their existing mortgage.
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years’ experience in the mortgage industry.
