Tuesday August 26, 2014 by The Mettle Group
What a summer it has been! Zander is approaching his 4th birthday and the kid is getting scary big. It is so weird having another man (all be it, a little man) roaming your home. The kid looks like he’s 7 years old; it’s truly scary how fast they grow. Z-Man starts Rowland Hall this week and joins the big boys at school. I feel like college is right around the corner and I challenge myself to slow down and share as many personal moments as possible.
Aria is almost 3 and also starts preschool at the Winner School next week. She’s such a princess, often changing clothes 4 or 5 times in an afternoon just to end up in the Princess Anna dress from the Disney movie Frozen. How insanely different are little girls and little boys wired? So much fun to watch these two.
Speaking of insane… I’m hearing some of the best bond and mortgage interest rate forecasters call for significantly LOWER interest rates in the second half of the year.
And guess what? We are starting to see them. Last week I was able to help a client on a Jumbo No Closing Cost, 30 year fixed at 3.875%, the 15 year jumbo was at 3.375%.
Oddly enough, the jumbo mortgage rates have dropped below what conforming interest rates are at the moment. If you have a loan over $417k, you might want to look into a refinance. I can’t ever remember seeing Jumbo No Closing Cost rates so low.
So what’s the catalyst? Why are rates headed lower?
First you should know that mortgage rates are not tied lock step with US Treasury bonds. It is possible to see Treasury bond rates go down, while mortgage rates go up. They have a relationship much like gold and silver. Sometimes they move in opposite directions in the short term, but more often the driving force behind the move pushes them both down the same path, either higher or lower.
This article first appeared in the Financial Times.
A number of factors have helped push Treasury yields lower. With yields on German 10-year Bunds dipping under 1 percent for the first time and Japanese government bonds yielding around 50 basis points, Treasuries look comparatively attractive. Add to that the perception that both the yen and euro are a one-way bet toward depreciation and it is reasonable to expect that international capital will continue flowing toward the U.S., pressuring Treasury yields down as quantitative easing draws to an end.
Tensions from Ukraine to Iraq have added to a flight-to-quality trade, boosting demand for U.S. Treasuries. With the size of incremental U.S. government borrowing also expected to decline because of shrinking federal budget deficits, Treasury yields could move lower.
If Treasury yields (rates) do move lower, mortgage rates will likely follow and potentially be exacerbated, because of the amount of Fed buying of mortgage backed securities, which is still significant.
I would NOT be surprised to see the 30 year conventional hit 3.875% before the end of the year. This could be the last chance for many clients to refinance to lower rates and or drop their mortgage insurance, due to price appreciation. Keep your eyes peeled, this could save you or someone you know a grundle!
The question is, how will real estate react to the drop in rates?
Before we answer that question, let’s take a look at where we are. This week the National Association of Realtors reported July sales numbers and they were the best so far year to date, up 2.4% from June to an annual rate of 5.15M sold homes. The July rate of sales marked the FOURTH CONSECUTIVE MONTHLY INCREASE but still 4.3% slower than last July.
The first half of 2013 was RED hot, but the market cooled a bit as prices jumped higher and interest rates approached 4.5% at the end of 2013. Inventory was ridiculously low in many areas of the country and clients elected to rent versus buy in the second half of 2013.
Inventory nationally is back to 5.5% supply (6 months is considered equilibrium), rates are forecasted to drop and many renters who elected to rent in the 2nd half of 2013, have their annual rent renewals coming up.
I’m forecasting a stronger than last year 3rd and 4th quarter, with lower interest rates, increasing sales volume and higher sales prices going forward.