Mortgage rates affected by improving economy
May 21, 2013
As the stock market has surged and various other measures of economic activity have shown strength in the last few weeks investors have pulled money from the relative safety of the bond markets and invested in stocks and other investments. As my regular readers know, this means mortgage rates are on the rise.
In general, most program rates have gone up as much as ¼ percent in the last ten days or so, which follows the rise of the yield on the 10-year bond note which is the 1.9 percent range. The 10-year note is the most popular and probably the most liquid investment in the world, and long has been a benchmark for other countries bonds to compete or be valued against.
Although the Federal Reserve Bank has continued to purchase mortgage backed securities as part of its campaign to keep rates low, even they cannot stem the tide of investors looking to take a risk in the stock market.
But there are other forces at work here as well, and one is dear to the hearts of everyone in happy valley and that is real estate. Historically, owning a home here has been like a well-paying second job income for many. While it is understandable to swell on the massive losses property owners in the valley have endured since about 2008, it is important to keep it in perspective that all things economic have cycles.
The momentum of our market comes from outside investors who want to enjoy the ambiance and lifestyle of owning property in Eagle County. These are people with a appetite for a little something different when it comes to home ownership. Also, they obviously have to have an appetite for risk, but only to the degree they feel that their basic lifestyle and family security will not be hampered by the financial obligations they incur in purchasing a second home here.
Obviously, the last five years we have lacked sufficient numbers of these individuals to sustain the demand we once enjoyed for our properties. The trickle down impact of the loss of construction jobs, real estate sales, home improvement projects and fewer jobs for appraisers, home inspectors and even mortgage brokers has magnified the impact substantially.
Back in 2007 we saw as many as 400 residential sale transactions a month in Eagle County. I believe the lowest number we ever saw in about 2008 was around 50. Currently we are running from 100-150 transactions.
But there is another aspect that I am picking up on as a lender. For several years, I got perhaps one call every few months from someone who wanted to take out money from their home to do some improvements or chase another investment opportunity.
As I regularly review the deed of trust filings made with Eagle County (a new mortgage triggers a new deed of trust filing), I could see that my friendly competitors saw about the same level of cash out and second mortgage activity.
But in the last few months I have received several inquiries from local homeowners about pulling money out of their homes to do improvements and invest in other opportunities.
Many recognize that the low rates we have now won't last once the economy picks up, and all have a confidence that the worst is over and it's time to move forward.
What I found very telling was that I noticed even a few realtors were taking money out of their homes to improve their homes. These people know the pulse of the market, and if they are investing in their own places that is always a good sign
I think this optimism is spreading throughout the economy, and I think the risk takers are coming out again to play and enjoy their money again. And that is nothing but good news for everyone who has hung in there through the last five years.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from local readers.