There’s quite a lot of interesting news out this week. Mortgage rates are going up, and the rates for “Jumbo” mortgages have dropped below regular interest rates. Mortgage applications are increasing and home prices are slowly stabilizing.
Home Prices Surging
CNN is reporting that while home prices are soaring 12.1% over the last year, the pace of the gains are slowing down which is moving us towards more stable housing prices. They suspected the increasing mortgage interest rates may be the cause.
June marked the first time in over a year that the overall increase has been smaller than the month before. S&P/Case-Shiller home price index monitors 20 major metro areas. Six cities in June saw price increases larger than the month before, down from 10 cities in May.
Record-low rates, a lack of new homes on the market and years of pent up demand have been the driving forces behind the recent home price spike, according to Erik Johnson, senior U.S. economist at IHS Global Insight.
Mortgage Rates Near Highest This Year
The Washington Business Journal analyzed the rising interest rates. They were starting to decrease last week and did a reverse to start their increase again.
Freddie Mac says a 30-year fixed-rate mortgage averaged 4.57 percent in the week ending Sept. 5, up from 4.51 percent last week. A year ago, 30-year mortgages were averaging 3.55 percent.
A 15-year fixed averaged 3.59 percent this week, up from 3.54 percent last week. A one-year adjustable-rate mortgage rose to 2.71 percent this week.
“Mortgage rates edged up this week on signs of a stronger economic recovery,” said Freddie Mac (OTC: FMCC) chief economist Frank Nothaft.
Mortgage Applications Rise As Rates Dip
As is typical of economic reports, USA Today is reporting that interest rates are decreasing, and there has been another increase in the number of mortgage applications.
Mortgage applications increased 1.3% last week reported the Mortgage Bankers Association. This number was seasonally adjusted for the week ending August 3rd as the interest rate on 30-year fixed mortgages fell to 4.73%, from a 2013 high of 4.80% the prior week.
The gains were primarily from refinancing rather than new mortgages. The refinance index increased from 60% to 61%.
The real estate rebound has been driven by Federal Reserve policy that includes $85 billion in monthly purchases of mortgage-backed bonds and U.S. government bonds in an effort to keep borrowing rates low. Interest rates have started creeping up with the rumors that the feds may ease up the purchasing of mortgage-backed bonds.
‘Jumbo’ Mortgage Rates Fall Below Traditional Ones
The Wall Street Journal Online is reporting that “jumbo” mortgage rates have done something that they’ve never done before: gone below regular interest rates.
Interest rates on mortgages for pricey homes have dropped below those on smaller mortgages, an event that lending executives say has never happened before.
Borrowing rates for so-called jumbo mortgages, which are too big for government backing, historically have been set higher than rates on what are known as conforming loans, which are backed by Fannie Mae, Freddie Mac or government agencies.
But in the past two weeks, the relationship has flipped, a combination of interest-rate volatility, government policy and banks flush with cash that are enjoying lower funding costs, making jumbo mortgages an attractive investment for them.
Jumbo mortgages are those that exceed the $417,000 limit for loans eligible for backing by mortgage companies. However, there are some metro areas such as Los Angeles where that limit is as high as $625,500.
The current interest-rate volatility has driven up yields on mortgage bonds issued by Fannie and Freddie as investors anticipate the slowdown in the Federal Reserve’s bond-buying program. This has boosted rates on regular loans.
Jumbo mortgages, on the other hand, are increasingly kept on banks’ balance sheets, and are fairly immune from the bond markets.
If you have any questions about loans and interest rates, contact your reputable loan officer who will know the latest on the economic factors and how it affects interest rates. They’ll also be able to discuss what mortgage packages are best for your situation.