Vail Daily column: Consumers taking rate hikes in stride
The Mortgage Guy
As many people know, about a six weeks ago mortgage rates suddenly surged by about 1 percent, bringing the 30-year fixed loan into the mid-4 percent range (depending on closing costs). Initially, homebuyers and homeowners went to ground, so to speak, and were not in the mood to talk about taking out a mortgage to refinance or purchase a home.
But, everyone knew the 3 percent interest rate party had to end sometime and everyone was expecting this to happen. In addition, rates are still historically low for our lifetime. I recall many times in my early career in the mortgage business calling my clients when rates finally got back to 7 percent! For probably most of the 1990s rates were in the 7 to 8 percent range.
A recent survey of consumers showed that only 5 percent think rates will decline to their previous lows. Sixty two percent expect them to continue rising. What is really good news is that 74 percent feel this is a good time to buy a home. This bodes well for many aspects of the economy.
It seems to me that humans are always longing for some level of normalcy, and as nice as it would be to have 3.5 percent 30-year fixed mortgage rates be the norm, most people knew that could not last and were waiting for the other shoe to drop, so to speak.
The fact that consumer sentiment towards buying a home is soaring tells me that there is a lot of underlying strength and growth waiting to happen out there. People are feeling more confident about their job security and future in general.
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The rise in rates should bode well for more options for mortgage loans and hopefully a return to a more moderate loan approval environment as more lenders compete for mortgage loan applications.
Until now, many potential sources of mortgage funding were simply sitting on the side lines because at 3.5 percent there simply wasn’t any real money to be made.
That left Fannie Mae and Freddie Mac the only game in town most days, and as they are basically bureaus of the federal government it was a bit like being ordered to eat Wonder Bread as dry toast every day. If you wanted some thick sliced, bakery fresh sourdough with homemade jam you had to be willing to really pay for it and prove you were so deserving.
My sources in the secondary mortgage market (where mortgages go to be funded in the long term) tell me that they are seeing activity and interest from a wide variety of insurance companies, REITs, hedge funds and other sources of money that they had not heard from in many years. This is bound to lead to a return of private label mortgage money that hopefully will have many options for borrowers. Although I am in no way suggesting that we return to the Wild West days of lending when someone waiting tables could be presumed to make $120,000 per year without question.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon, and can be reached at 970-748-0342. He welcomes mortgage related inquiries from readers.