From time to time economic messages become very mixed – this is one of those times.
Here’s an example of some headlines today about economic reports and the mortgage industry:
“(Mortgage) Applications Up, Refis Hit 4-Month High”
“New-Home Sales Hit 3-Month Low”
“Jobless Claims Lowest in More Than 8 Years”
“IMF Cuts 2014 Global Outlook”
“Job Growth Picks Up in States That Raised the Minimum Wage”
“Wage Growth Still Muted…”
And this is all just this morning! It’s enough to make your head spin.
But what we care about (in this blog) is real estate financing, real estate values, and real estate sales.
In a recent blog I reported that the smartest guys in the room were projecting that interest rates would drop slightly and stay low for the next few weeks, although they are still heading up in the long run. As it turns out, that’s looking like a good prediction so far. Rates are holding very steady at just about the lowest rates we’ve seen since April of 2013.
What will happen moving forward? The interest rate market is a pretty complicated machine, but the two things that impact it the most are expectations about inflation and competition (between investors) for the investments (the debt, in the form of mortgage-backed securities.)
Strong economic news tends to increase the expectation of future inflation, and therefore tends to push interest rates up. It also tends to give consumers more confidence and increase their desire to purchase real estate (among other things.) And job growth – particularly if it is accompanied by wage growth – makes real estate more affordable, and thus also drives up demand for housing and thus real estate values.
Weak economic news tends to decrease the expectation of inflation, and thus push interest rates down, and demand for housing down due to potentially lower consumer confidence.
But what about competition between investors? As I’ve reported before the Feds have been tapering bond purchases, and are thus backing out of the market. At one point they were buying more mortgage-backed securities than were being written, so they were not only competing with other investors, they were basically driving them out of the market. By this coming October, they will have completely ended their bond-buying program.
With significantly less competition for mortgage-backed securities interest rates simply have to rise by October. Since we all know this is coming, it will happen well before October.
The market has fooled us most of this year, but the signs are becoming clearer and clearer. The window for refinancing is closing fast. If you are thinking about it, call now, not later. Two weeks ago I wrote “…another drop in rates is likely to boost refinance activity a bit…” The market, it would appear, is becoming a little more predictable.
Casey Fleming, Author of The Loan Guide: How to Get the Best Possible Mortgage (On Amazon)
Mortgage Advisor, C2 Financial Corp
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