Recent news gives mixed predictions for future mortgage rates

November 06th, 2010

Elections, announcements, economic news, all with impact on the housing and mortgage markets. What sense to make of it all, and how can it help you with your new home loan or refinance mortgage? Mortgage calculators are extremely useful tools for planning your mortgage, as useful as up-to-date information that shows trends in housing prices and mortgage rates. Here is the information from the past week that can affect both prices and rates.

Elections and mortgage rates

With the Democrats losing their majority in the House of Representatives and with a smaller majority in the Senate, the Obama administration will face a more difficult challenge in the next two years passing signature legislation. Beyond major legislation however, with the House in Republican control, federal spending may also change. Stating that voters have given the message of lowering federal spending and deficits, Republican leaders have gone on record promising to cut back federal spending and deficits.

A major philosophical divide between the two political parties is the government’s role in economic recovery. For the past two years, President Obama and the Democratic-controlled Congress have followed the economic philosophy that increased government spending can revive an economy in recession. Countering that philosophy, the new majority contends less government spending and lower taxation are better tools to stimulate the economy.

How does this philosophical shift impact mortgage rates? As long as the economy lags you will continue to put low mortgage rates into mortgage calculators. When the economy begins to grow at a greater pace rates will begin to increase; by how much will depend on many factors, including the borrowing required by the government to finance deficits. If you feel the economy will begin to grow at a faster pace and you want to lock in low mortgage rates, you should enter into your new home loan or refinance application sooner rather than later.

Federal Reserve news and mortgage calculators

The big economic news this week was the Federal Reserve announcing a second debt purchasing plan, known as QE2. As discussed here earlier this week, with the concerns about inflation being too low, job growth being too slow and economic expansion getting slower, the Fed has decided to pump an additional $600 billion into the economy. Rather than just printing more bills, the Fed will accomplish this by purchasing government debt over the next eight months. The impact of QE2 is subject to much debate, similar to the debate as to whether government spending helps or hurts economic recovery.

With its intention of keeping interest rates at record low levels, and perhaps shoving long term rates on mortgages even lower, the Fed is counting on singlehandedly raising demand for Treasury notes to meet its low rate objective. If you have been using refinance calculators to determine your monthly mortgage savings or reducing the term of your mortgage, the Fed is essentially telling you: keep plugging low mortgage rates into the mortgage calculators.

Spending and saving trends

Some major announcements concerning the economy and housing markets were released this week. Personal income and consumption figures showed that consumers are spending just a little bit more with personal consumption up 1.2 percent in October from September. The news was not enough to get retailers excited about a booming Christmas shopping season. Consumers could see early bargains in the stores as retailers look to capture scarce consumer sales. With personal incomes down 0.1 percent in October, Americans dipped a little bit into savings for their purchases in October as spending increases exceeded the drop in income.

For the third week in a row, the Freddie Mac Weekly Mortgage Survey on November 4th showed a modest increase in the average 30-year fixed rate mortgage rate, inching up to 4.24 percent at a cost of 0.70 origination points. With such a slight increase in the rate from 4.19 percent three weeks ago, there appears to be no connection to the slow-down in mortgage applications reported by the Mortgage Bankers Association. The MBA announced that for the week ending October 29th total applications fell 5 percent for the week led by a 6.4-percent decrease in refinance mortgage applications. Purchase applications saw a 1.4-percent increase but lagged last year’s purchase applications by a substantial 28 percent.

Reporting on September pending home sales, sales under contract but not yet closed, the National Association of Realtors announced a 1.8-percent decline in pending sales from August. This is in line with the S&P/Case Shiller median home price index which reported earlier that home prices remain relatively flat nationwide.

Knowledge is power

If you are considering when to complete your new home loan or refinance mortgage and using mortgage calculators in your decision process, be sure to look at the economic information available that can help predict rates and prices in the near future.

Posted By :
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.

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