By Roger Showley, from U-T news services 02:01p.m. Jul 3, 2013, updated 05:17p.m. Jul 3, 2013. [Link to original article]
Note the prediction of Cal State San Marcos economist Robert Brown.
Average U.S. rates on fixed-rate mortgages fell this week after last week’s surge, Freddie Mac reported Wednesday. The declines could prompt homebuyers to act quickly before rates rise further.
The mortgage giant said the average on the 30-year loan dropped to 4.29 percent. That’s down from a two-year high of 4.46 percent last week, caused by the biggest one-week jump in 26 years.
The average on a 15-year mortgage, a popular refinancing instrument, fell to 3.39 percent, down from 3.50 percent last week — the highest since August 2011.
Rates are adjusting after spiking over expectations that the Federal Reserve will scale back bond purchases later this year if the economy keeps improving, said Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage-information website. “We see rates starting to settle back after the panic move,” Gumbinger said.
The bond purchases have kept long-term interest rates down, making mortgages and other consumer loans cheaper. A pullback by the Fed would likely send rates higher.
Despite the gains, mortgages are still low by historical standards. Low mortgage rates have helped fuel a housing recovery that has kept the economy growing modesty.
Despite the rate fallback, Gabe del Rio, chief operating officer of Community HousingWorks in San Diego, said many first-time buyers could not proceed with a planned purchase and now have had to restart their search.
“It makes it more difficult as a buyer because they’re competing with cash investors, especially on the low end” of $250,000 to $325,000, del Rio said. “A lot of folks were knocked out with this increase in rates.”
He said those buyers who can still move forward should lock in the loan rate in case it rises again and sign up for a “floating lock” that drops automatically as escrow closing time nears.
For move-up buyers, Chad Baker at W.J. Bradley Mortgage Capital in San Diego said about 30 percent of his current clients are opting for adjustable-rate loans rather than paying higher rates for fixed-rate loans. But he said others are downsizing their purchase-price points to counteract higher rates.
“This is such a huge shift for everybody,” he said. “People are wary of the interest rate.”
As one example, he said a buyer of a $440,000 home could not proceed when rates jumped from 3.75 percent to 4.25 percent because the monthly payment would have increased nearly $200. That buyer has now decided to shop for a $400,000 property on which the payment would be about $1,824 rather than $2,006 under the earlier scenario.
With prices and rates on the rise, Baker said buyers are moving fast, even during a holiday week, to look, make an offer and lock in rates.
“I’m staying in town this weekend because a lot of my buyers are actively looking.”
Robert Brown, Cal State San Marcos economist and consultant to the North San Diego County Association of Realtors, said it’s likely rates will not move much from their current figure in the immediate future. But he said over the next few months, bet on a general rise.
“If people expect something is going to happen, in two weeks, in a month or two months, ‘I’d better get into this market now,'” he said.
However, the usual impact — dropping prices as rates rise — is not necessarily going to happen locally.
“There are some offsetting factors happening right now,” he said. “The economy is doing better — that’s putting upward pressure on home buying.”
For every deal that falls out because of loan problems, another buyer might stand in the wings who doesn’t have the same sensitivity to small monthly payment increases.
“How it affects prices really depends,” he said. “Ultimately, if one person drops out, nine others are ready to bid. The effect on the price will really be determined by who that one person was who dropped out. If it’s the lowest bidder, there would be no impact on the final price of the house. If it’s top bidder, it will fall a little bit.”
In early May, the average rate on a 30-year mortgage was 3.35 percent, just above the record low of 3.31 percent.
Buyers seeking to take advantage of rates before they climb further are competing for a tight supply of listings, driving up values. U.S. home prices rose 12.2 percent in May from a year earlier, the largest increase since February 2006, said Irvine-based CoreLogic.
The increase in borrowing costs is having more of an effect on refinancing than purchases. The Mortgage Bankers Association index of refinance applications declined 15.6 percent in the week ended June 28 to the lowest level since July 2011, the Washington-based trade group said Wednesday. The gauge for purchase applications fell 3.1 percent, while remaining 12 percent higher than a year ago.
“It’s possible that the rise in rates is encouraging those thinking about buying to commit to a purchase now to avoid further rate hikes, hence the resilience of applications for home purchase,” Paul Diggle, property economist at Capital Economics in London, wrote in a note Wednesday. “But the bigger point is that, with rates still at historically very low levels and affordability favorable, there’s no reason that housing demand cannot continue strengthening.”
To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of the week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for a 30-year mortgage was 0.7 point this week, down from 0.8 last week. The fee for a 15-year loan was also 0.7 point, also down from 0.8 last week.
The average rate on a one-year adjustable-rate mortgage remained unchanged at 2.66 percent, the same as last week. The fee was 0.4 point, down from 0.5 point last week.
The average rate on a five-year adjustable mortgage was 3.10 percent, up slightly from 3.08 percent last week. The fee was 0.7 point, up from 0.5 point last week.
The Associated Press and Bloomberg News contributed to this report.
