Local mortgage market little affected by rate cut
Vail, CO, Colorado
EAGLE COUNTY ” Last week the Federal Reserve announced it would cut the interest rate on overnight loans between banks from 4.75 percent to 4.5 percent.
At the consumer level, this rate cut is unlikely to affect short-term variable rate debt, such as credit cards and home equity lines of credit. Many consumers may see interest rates go down for any debt they have that’s tied to the prime rate, perhaps lowering monthly payments.
The rate cut is the second since September and seen by Federal Reserve officials as a way to head off the some of the economy’s worrisome trends such as tighter lending standards as a result of collapse of the sub-prime mortgage market.
According to local mortgage expert Arch Wright of Wright Mortgage Company in Edwards, the housing woes in much of the country haven’t been seen locally.
“Vail continues to be a very special, desirable real estate marketplace where many of the more subtle ripples in the national economic landscape are not typically as noticeable,” Wright said. “However, I do question the Fed’s decision to cut rates further with the U.S. dollar as weak as it is and with what is happening to the prices of gold and oil.”
Both gold and oil continue to trade at high prices levels, which can spur inflation in all levels of the economy. Inflation could cause mortgage rates to rise, thus making homes less affordable.
According to Freddie Mac’s weekly survey of mortgage interest rates, the rate for a 30-year fixed rate mortgage continues to hover near a five-month low. Because of continued low interest rates, the Mortgage Bankers Association says it’s expecting the rate of refinance mortgage applications to rise by 9.2 percent in November.
Laura Howard, vice president and mortgage loan consultant with Colorado Capital Bank in Eagle, says because mortgage rates are not tied to short term interest rates, she does not expect to see an increase in mortgage applications for home purchases because of the Fed’s rate cut, however if rates are improving on home equity lines of credit she could see an increase there.
Howard added that the mortgage industry as a whole is expecting to see an increase in refinance activity in the next year and a half for a couple of reasons.
“First of all, those whose adjustable rate mortgages are getting ready to adjust want to lock in their rate for a longer period of time,” Howard said. “Secondly, those who have been made nervous by all the press surrounding the mortgage industry are looking to convert to a fixed rate mortgage.”
Howard has been telling clients that “if they have a conforming loan on a primary or secondary home, then now is really a great time to refinance should they need to.”
Wright echoed Howard’s advice. He says he is seeing a rise in refinances among those who “are a little anxious about waiting much longer to refinance out of an adjustable rate mortgage and those that are planning to stay put for at least the next four years, even though long term rates have not fallen quite as far as many had hoped.”
Wright’s advice is to keep an eye on inflation in the near term as mortgage rates are likely to start rising if inflation shows any strength in the coming months. “I’m going to try and get some folks locked into long term mortgage rates while they are still low,” Wright said.