Did You Miss Out On Lowest Mortgage Rates?

by Amy Hoak

Mortgage rates have edged up for the past few weeks, but rate watchers aren't so sure the trend is here to stay.

“The U.S. economy is not out of the woods, the European debt crisis has not been solved, we’ve got this looming fiscal cliff … there is no shortage of headwinds to the economy and there’s the possibility of more Fed stimulus,” said Greg McBride, senior financial analyst for Bankrate.com, an aggregator of financial rate information. “All it would take is one hiccup and we could see rates moving back down.”

Rates on the 30-year fixed-rate mortgage averaged 3.62% for the week ending Aug. 16, according to Freddie Mac’s weekly survey of conforming mortgage rates. Rates fell as low as an average 3.49% for the week ending July 26, Freddie Mac reported.

But it’s important to keep the numbers in perspective: Rates are now back at levels seen around the Fourth of July, and people were more than happy to lock in similar rates then, McBride said.

Better-looking economic data is behind the latest rise in interest rates, with the improved numbers removing some of the urgency for the Federal Reserve to unveil more stimulus at its next meeting, McBride said. The expectation of more stimulus is partly what pushed rates down last month. Uncertainty about the Fed’s next move is now pushing rates higher.

A stimulus could come in a variety of forms, including the federal purchase of more mortgage-backed securities, to keep rates low, he said.

“We don’t know if the summer data is a blip or the start of a trend,” said Dan Green, a Cincinnati-based loan officer for Waterstone Mortgage Corp. Upcoming data releases in the next couple of weeks will help clarify the strength of the economy, he added.

Mortgage markets are also still being affected by issues in the euro zone, Green said. And any “hint that the [European Central Bank] doesn’t have its act together will put pressure on mortgage rates to fall,” he added.

When investors have renewed concerns about Europe, they tend to look for safe havens to park money. That usually means investing in the U.S. bond market, which tends to drive mortgage rates downward.

“Long term, I don’t know if rates will rise or fall,” Green said. However, “there are a lot of events that can prevent rates from getting past 4%.”

Even if mortgage rates have already hit their lows in the short run, people considering a refinance should remember that rates are still incredibly low by historical standards, said Bob Walters, chief economist for Quicken Loans, an online home lender. And given that home prices have risen in some places over the past year, some borrowers may discover that they again have enough equity in their home to make a refinance worthwhile.

His advice: Don’t wait for rates to drop more. If it makes sense for you to refinance now, do it.

“The closer you get to 0%, the harder it is for rates to push lower. It doesn’t mean they can’t. But it’s like blackjack: The closer you get to 21, the harder it is for you to get a card that will help you,” Walters said.

“It’s also likely that when [rates] spring forward, they can do so with gusto.”

It’s possible that rates could jump substantially, over just a few days, Green said. The climate could change so fast that people watching and waiting for rates to move lower could lose their chance altogether.

For those currently shopping for a home, the most recent rise in rates won’t likely have much of an effect on how much house you’d be able to get for your money, McBride said.

In fact, you’d be able to afford a much more expensive home today than you would have several years ago, according to Walters’s math. Or, for example, assuming a 35% home-price decline on a house that was once $400,000 and a drop in rates from 6% to 4%, a borrower might be able to buy the same house today for roughly half the monthly payment that they’d have signed up for several years ago, Walters said.

Of course, the prevailing trend is that people are more conservative, and would likely take the lower payment than the bigger house, McBride said.

“Even people who are taking the plunge [and buying a house], by and large, they’re not going hog wild in taking on debt. You can find instances where more affluent households are taking advantage to buy a bigger place. But I think that’s more of a limited instance,” he said.

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