LOW MORTGAGE RATES: NOW AND FOREVER
If you had asked us five years ago if sub-4% on a 30-year fixed-rate mortgage would be the norm in 2016, we’d have answered highly unlikely. Five percent or more would seem more reasonable.
But here we are in 2016 and quotes on the 30-year loan are not only below 4% but frequently below 3.75% as well. Consumer-price inflation is one reason we thought 5% would be more likely than 3.75% on the 30-year loan.
Through quantitative easing and a low federal funds rate, the Federal Reserve has injected trillions of new money into the banking system. For a number of reasons – people’s desire to hold more cash, technological advances, lower demand, productivity gains – consumer prices have yet to lift off. Most everyone thought they would have lifted off by now with so much new money sloshing around.
You’ve likely heard the radio commercials: Lock in your mortgage rate today because the Fed is likely to raise interest rates in the near future. The Fed did raise rates once, back in December, but that was only a 25-basis-point increase in the fed funds rate. Mortgage rates briefly rose, but then drifted lower to again embrace historic lows.
So, when will rates rise?
Fed officials convened last week, and as expected, they did nothing. They meet again in six weeks, and quite a few economists think the Fed will finally raise the fed funds rate again. The Wall Street Journal surveyed a bunch of business and academic economists. Of the economists who responded, 75% think the Fed will raise the fed funds rate at the next meeting in June.
Keeping you informed on events this week that may create volatility in mortgage rates.
WHERE IS ALL THE MONEY GOING ANYWAY?
We mentioned above that the Federal Reserve has pumped a lot of new money into the banking system. So, where has all that money gone?
Much of it sits as bank reserves with the Fed. Banks have about $2.4 trillion in excess reserves held in account. Money has also worked its way into financial markets, the stock market in particular: The S&P 500 Index has risen 300% since early 2009.
Residential real estate has been the real market of choice, though. After the housing bubble burst in 2008, home prices bottomed a year or so later. Since mid-2010, prices have gone mostly up, and they continue to do so.
CoreLogic’s latest home price index shows prices trending higher. Its latest data show prices up 6.7% nationally in March 2016 compared to March 2015. Of course, the gains aren’t equally dispersed. Washington state has seen home prices rise 13% year over year. Oregon and Colorado have experienced 10% year-over-year price appreciation.