Experts debate mortgage rate future
If you think Congress can’t agree on anything, then you should see what crosses my desk as mortgage industry pundits debate the future of interest rates. Seldom have I seen such lack of consensus, and probably for good reason.
Topping the list is the unknown impact of the collapse of oil prices, which are down about 50 percent. Extremely wealthy individuals and countries that were vested in oil now are finding themselves only very wealthy (or in the case of Russia, in deep trouble).
POWER OF OIL
Worldwide, the value of write downs on assets involving oil wells, drilling rigs and the like is likely to be in the trillions. The industry is a victim of its own success. High prices made getting to hard-to-get oil profitable, but once all that oil hit the market place, there was a glut.
The price of about everything is dependent on the price of oil, as all goods require some degree of power to be manufactured, transported and even carried home from the big box. Factories and stores consume huge amounts of hydrocarbons. Governments collect billions in taxes that are either directly or indirectly tied to the price of goods, which are tied to the price of oil.
While consumers suddenly have more money in their pockets, corporations and governments don’t. That scenario will slow many aspects of the world economy and create uncertain times when it comes to bonds and loans being repaid and how corporate profits will shake out.
On the other hand, the U.S. Federal Reserve Bank seems to think the sun is shining and the wind is calm out there and seem determined to raise interest rates this year, which at first blush fueled a huge rally in stocks in late December.
But so far this month, investors seem to have sobered up from their holiday merrymaking and things have gotten tough in the markets. As generally happens, when the news is bad, mortgage rates drop and that has been the case. After spiking in late December, rates have started to back down.
CLASHING OF SWORDS
This has all led to a clashing of swords by those who believe the Federal Reserve’s plan will be executed and that will lead to increased rates mid-year versus those who think that the U.S. will continue to attract investors simply because we may be the comparatively stable and safe haven compared to the rest of the world, and the inflow of cash will keep rates on mortgage bonds low in spite of what the Fed does to short-term rates (the Fed does not set long-term rates, but they can try and influence them).
NOTHING TO COMPLAIN ABOUT
That said, it seems hard to believe homebuyers really have much to complain about right now. A 30-year fixed rate mortgage under $417,000 can be found in the high 3 percent most days with no upfront points. If you want to pay some points, then you can find mid 3 percent easily.
Homebuyers can also now purchase a home with a conforming loan amount (less than $417,000) with as little as 3 percent down, although the low down payment does require a higher rate and mortgage insurance.
Chris Neuswanger is a mortgage loan originator with Macro Financial Group in Avon and may be reached at 970-748-0342. His blog and a collection of past columns may be found at http://www.mtnmortgageguy.com.