Mortgage rates are directly correlated with the state of the economy. As we are currently trying to remove ourselves from a recession, with relative success might I add, mortgage rates are near historical lows. However, with the economy gaining traction and encouraging signs within the job sector, rates are on the move again. While mortgage rates are considerably lower than they have been in the past, they are at their highest level since last month. If encouraging news about the economy continues, rates could edge even higher. While the brief drop a few weeks ago, due to concerns over global economic growth, may already seem like a distant memory, we should take a hard look back nonetheless.
As recently as the first part of October, the average rate on a 30-year fixed-conforming mortgage fell bellow 4%. While the rate has since crept back up, it revealed several things about the market you may not have been aware of till now:
Despite a relatively moderate decrease, lower rates pushed a lot of people off the fence to refinance. According to the Mortgage Bankers Association (MBA), applications to refinance jumped more than 20% in approximately one week. The important takeaway, however, is the larger than expected population that sees refinancing as a viable option. It was a common misconception that anyone who could refinance already did so. Now it appears as if that is not the case. The recent rate reductions added 1.4 million borrowers to the “refinanceable” population, according to a new report from Black Knight Financial Services, which estimates that at least 7.4 million 30-year loans could now benefit by refinancing.
Despite what experts predicted, lower rates were not enough to convince more people to make the transition from renting to buying. Surprisingly, lower rates were not enough to convince people to borrow. Mortgage applications to purchase a home actually fell along with rates, and then rose this week when rates began climbing higher. The correlation suggests that homebuying is not as much about rates as it is about price and supply. The two are inextricably linked, and both have been moving more dramatically than normal lately. Buyers are either facing sticker shock or not finding what they want.
Wall Street may have been responsible for scaring many buyers away from the housing sector. “Wall Street believed that the end of QE3 would send mortgage rates to the 5s (percent range). Those predictions may have pulled demand for housing forward and may partially explain why the recent sub-4-percent rates did little to stoke purchase loan applications,” said Dan Green, publisher of themortgagereports.com.
Again, October witnessed increases in mortgage rates. When October began, 30-year mortgage rates averaged 4.20%. Throughout the month, they dropped as low as 3.92% before rising slightly into November. The October rates were unexpected, as the months leading up to it had remained relatively stagnant. In fact, mortgage rates moved more in October than they did in the previous four months combined. Experts have already suggested that we should see the trend continue into November.
