Cheaper Mortgages Could Spur Housing Market
April 23 2017 - 7:29AM
Dow Jones News
By Laura Kusisto
Mortgage rates dropped below 4% for the first time since
November, providing more kindling to an already hot housing market
as the crucial spring selling season gets under way.
The average rate on a 30-year fixed-rate mortgage dropped to
3.97% for the week ended April 20, from 4.08% a week earlier and
4.3% in mid-March, according to data released Thursday by mortgage
company Freddie Mac.
The drop could help encourage buyers who had been put off by
rising mortgage rates to dive into the market and prompt others to
rush to buy homes before rates rise again.
"We are in the spring, and people are out looking to buy homes,"
said Len Kiefer, deputy chief economist at Freddie Mac. "These low
rates are really going to help out with affordability."
For most of 2016, mortgage rates, which generally move together
with yields on the benchmark 10-year U.S. Treasury note, hovered
just above 3.5% for the 30-year fixed-rate mortgage.
After the November election, optimism that the U.S. economy
would get a boost from Republican plans for a tax overhaul,
increased infrastructure spending and reduced regulations helped
drive interest rates sharply higher as investors bet on faster
growth.
But the tide is turning. Treasury yields, which move in the
opposite direction of prices, approached a five-month low last week
as many investors worried that turmoil in Syria and North Korea, as
well as election uncertainty in France and the lack of progress on
tax and spending policy under President Donald Trump, would lead to
slower economic growth in the months ahead.
"Almost the entirety of the Trump bump [to mortgage rates] has
been washed away," said Keith Gumbinger, a vice president at
HSH.com, a mortgage-information website.
That, in turn, could spur the housing market, economists said. A
decline in mortgage rates can reduce monthly mortgage payments or
allow buyers to purchase more expensive homes than they otherwise
could afford.
Economists said a surge of additional buyers this spring
wouldn't be entirely welcome. "It's driving more demand into a
market that doesn't have much in the way of supply," Mr. Gumbinger
said.
U.S. home prices rose 5.9% in the 12 months ended in January,
the fastest rate since mid-2014, according to the S&P CoreLogic
Case-Shiller Indices. Data for February are due Tuesday.
The impact of a decline in mortgage rates of about a third of a
percentage point would be relatively small in many areas of the
U.S. The monthly mortgage payment for a home at the median price of
$236,400, assuming a down payment of 20%, would be about $50 less
today than a month ago.
The effect would be much more pronounced, however, in high-cost
markets, such as California. Monthly mortgage payments would
decline by about $100 for buyers purchasing homes of about
$600,000. At the same time, the size of a mortgage that such buyers
could qualify for could swell by about $25,000, according to Black
Knight Financial Services, a mortgage and real-estate technology
and data provider.
Lower mortgage rates also could provide a small boost to
refinancing activity. The number of U.S. homeowners who could save
enough to make refinancing worthwhile has jumped 46% to 4.1
million, from 2.8 million last month, according to Black
Knight.
Still, analysts expect the impact on refinancing to be
relatively small. The vast majority of homeowners have had ample
opportunity already to refinance at rates of less than 4%, given
the roughly 3.5% rate for most of 2016.
Economists said the 30-year fixed-rate mortgage would need to
drop below 3.5% to have a significant impact on refinancing and
purchase activity.
Many of them say that is unlikely given that the Federal Reserve
is likely to raise short-term interest rates twice more this year,
which in turn could fuel an uptick in mortgage rates, economists
said.
On the other hand, continued uncertainty in Syria, North Korea
and France or a failure by Republicans to deliver on promised tax
overhaul and economic growth could help keep rates lower.
"It's as volatile as it's ever been. There are a lot of serious
crosswinds happening. It's a very political market," said Steve
Udelson, president of Owners.com, an online real-estate
brokerage.
Write to Laura Kusisto at laura.kusisto@wsj.com
(END) Dow Jones Newswires
April 23, 2017 07:14 ET (11:14 GMT)
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