So notes Moody’s chief economist, Mark Zandi. More accurately put, the coming weeks or months may well offer lowest cost of financing the purchase of a home in close to 50 years.
For some time now, we have been noting that interest rates have a high probability of increasing due to many factors including the Fed ceasing its $1.25 trillion Mortgage Backed Securities purchase program which has helped prop up the housing market via low rates. Couple this with worries about the growing debt burden the US government is taking on, and most experts expected rates to reach 6% by the end of 2010.
As we recently wrote about in the post My Big Fat Greek Crisis, however, there are many repercussions of the European debt fiasco, some of which we are feeling now, and some of which we have yet to observe. For the time being, investors worried about their exposure European risk are piling into the relative safety of US Treasuries, creating downward pressure on their yields and consequently lowering a wide spectrum of consumer interest rates, including mortgages.
This means experts have revised their interest rate estimates to 4.5%. Last week, 30-year mortgages averaged 4.84% (the lowest since 12/09), while their 15-year brethren averaged 4.24% (the lowest since 1991). To put it into perspective, up until as recently as 2003, 30-year rates hadn’t dipped under the 5% mark since the ‘60’s. Further, according to Credit Suisse, almost half of all borrowers in 30-year conforming fixed-rate products pay 5.75% or higher. Refinancing at current rates equates into almost a full percentage point, the equivalent of a 10% difference in the price of the home.
Lower rates are a great opportunity for many to lock in cheap financing for the purchase of a home or for renovation / upgrade efforts. In addition, this could be the perfect time for those holding adjustable rate mortgages (ARMs) to refinance into a fixed rate product. The key in this tight credit market, of course, is actually getting approved for refinancing … easier said than done.
So how long will these rates last? It all depends on the magnitude of the European crisis, and how long it will endure in the mind of investors.
- “There’s a tremendous window on re-financing.” – Greg McBride, chief economist at Bankrate.com.
- “I think they won’t last much longer than a month or two at the best.” Lawrence Yun, chief economist at the National Association of Realtors. “I can see them going up to 5.5 percent by the end of June if not sooner.”
- “I can’t see these rates being this low in three to four weeks,” Mark Zandi, Moody’s chief economist.
What seems clear is that the mortgage market has had a bit more life injected into it by the European situation. How this will impact US, let alone Manhattan real estate, is another story altogether.
