ShareThisHow much lower will mortgage rates go?
That question is on the lips and minds of mortgage shoppers from Seattle to Miami. In recent months, rates have sunk to near historic lows, presenting Americans with a rare opportunity, according to economist Bob Walters.
"The best time to buy a house and refinance -- solely from an interest rate standpoint -- is now," says Walters, chief economist at Quicken Loans in Livonia, Mich.
Still, some shoppers continue to wait, hoping for a perfect world where rates dip south of 5 percent and recently stabilizing home prices resume their epic plunge. If history is any indication, such procrastination may be a mistake, Walters says.
"All of us who have been in the business for a while know that interest rates rise faster than they fall, and they usually rise in a very unexpected time frame," he says. "People could wake up to substantially higher mortgage rates at some point."
While it's impossible to predict what will happen to rates for the rest of 2009 and beyond, many mortgage professionals are advising clients to act now.
"If you have plans to refinance or buy a home, don't wait," says Chris Sipe, a loan officer at America East Mortgage in Frederick, Md. "There is no logical reason to do so."
People who dream of lower mortgage rates often pin their hopes on the Federal Reserve. It's widely believed that Fed decisions directly move mortgage rates up or down. But that's not true, says Walters, who contends that "there's not a great correlation" between Fed rate actions and mortgage rate movement. Instead, the anticipated inflation rate provides a better barometer of where mortgage rates are headed, he says.
"Mortgage rates are always going to be some percentage above what the expected inflation rate of the next 10 years or seven years is going to be," he says. "I tell people to watch that more than to watch (the) fed funds (rate)."
Right now, inflation fears are rising, thanks to two years of massively stimulative monetary and fiscal policy intended to jolt the nation's faltering economy. Looking ahead, two Federal Reserve policies that have kept interest rates low are due to expire in the next few months.
In October, the Federal Reserve begins to wind down its campaign of buying $300 billion in long-term U.S. Treasury securities. A Fed effort to buy up $1.25 trillion in mortgage-backed securities is slated to expire at the end of the year.
So, it's possible -- although not certain -- the stars are aligning to drive long-term rates higher for an extended period, says Dick Lepre, senior loan officer at Residential Pacific Mortgage in San Francisco.
"One can easily make the case that we will not see mortgage rates this low for the next 10 years," Lepre says.
As the possibility of higher rates grows stronger, many mortgage professionals are urging fence-sitting mortgage shoppers to act.
Mortgage consultant Michael Becker, who works for Green Pastures Mortgage and Finance in Lutherville, Md., says consumers should keep an eye on the calendar. Several federal programs set up to help homeowners and boost mortgage activity expire over the next year. They include:
--First-time homebuyer $8,000 federal tax credit, scheduled to end Nov. 30.
--Increased Fannie Mae and Freddie Mac conforming loan limits in high-cost housing markets, scheduled to terminate at the end of the year.
--Home Affordable Refinance government program to help struggling homeowners refinance, scheduled to end in June 2010.
Mortgage shoppers must remember these deadlines as they plan their purchases, says Becker. "While Congress may decide to extend these programs, there's no guarantee," he says. "You should at least look into these programs to see if you qualify."
Mark Madsen, a mortgage consultant at RainTree Mortgage in Las Vegas, agrees. He says first-time homebuyers especially need to remember that a failure to close on their homes before Dec. 1 will leave them ineligible for the tax credit.
"Buyers need to keep in mind that it may take several months to negotiate and close on a new home," he says, adding that delays are especially likely in foreclosure and short-sale transactions. While some home shoppers may be tempted to delay a purchase and wait for prices to fall further, such a strategy could backfire if rates jump, Madsen says.
"Waiting around for the price to go down an additional $5,000 may end up costing you several thousand dollars a year in higher mortgage payments if rates do go up a percentage point or two next year," he says.
Of course, it's possible predictions of higher mortgage rates will prove unfounded. As Walters has noted, "Nobody has a perfect crystal ball." For that reason, mortgage shoppers should make buying decisions based on life circumstances instead of hunches about whether or not mortgage rates will climb, he says.
"Rates are very attractive, but I don't think they should drive the buying decision," Walters says. "The buying decision is really driven by one's life and where they are and their dwelling needs."
The average 30-year fixed-rate mortgage fell 12 basis points, to 5.41 percent. A basis point is one-hundredth of a percentage point.
This week's average 15-year fixed-rate -- a popular option for refinancing -- fell 9 basis points, to 4.74 percent.
The average jumbo 30-year fixed slid 9 basis points, to 6.34 percent.
Adjustable-rate mortgages split this week. The one-year adjustable-rate mortgage rose 5 basis points, to 5.15 percent. Meanwhile, the popular 5/1 ARM edged down 1 basis point, to 4.94 percent.
(Distributed by Scripps Howard News Service. Reach Chris Kissell at editors(at)bankrate.com)
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