The Real Estate Hub

Another week, same old story. 

Mortgage markets improved again last week on worsening news out of Greece and the Eurozone. Then, as contagion mentality set in, U.S. mortgage bonds gained and mortgage rates fell.

It’s the 4th straight week in which conforming mortgage rates in South Carolina improved and, against the expectations of experts everywhere, it’s now late-May and mortgage rates are as low as they’ve been all year.

If you’re a homeowner and haven’t looked at refinancing lately, it may be a good time to call your loan officer to hear your options. Especially because low rates can’t last forever.

The European market concerns are likely overblown and the U.S. economy continues to expand at a measured pace.

This week, housing and inflation data takes center stage.

• Monday : Existing Home Sales data
• Tuesday : Case-Shiller Index; Home Price Index
• Wednesday : New Home Sales data
• Thursday : GDP
• Friday : Personal Consumption Expenditures

Each of these data points has the power to move mortgage rates — especially because trading volume is expected to thin as the 3-day weekend nears. As volume drops on Wall Street, it will be harder to match buyers and sellers and, as a result, mortgage pricing will get (more) erratic.

Rates should be most stable at the start of the week. It may be the best time to lock a rate.

Mortgage markets improved yesterday after the Federal Reserve released its March 16, 2010 meeting minutes. It’s good news for home buyers and rate shoppers — rates could have just as easily gone the other way.

The Fed Minutes is a detailed recap of the debate and discussion that shapes the nation’s monetary policy. The notes are dense; it takes 3 weeks to compile them for publication.

As compared to the more well-known, post-meeting press release, the Fed Minutes are extremely lengthy. For example:

• March 16 press release : 451 words
• March 16 meeting minutes : 6,152 words

If the press release is the executive summary, the Fed Minutes are the novel.

The extra words matter.The minutes recount what the Fed did, how the Fed did it, and what the Fed plans to do next. And, in the minutes, Wall Street looks for clues. 

This is why the report is important to every rate shopper in the country.

When the Federal Reserve publishes the minutes from its meetings, it leave clues about the groups next policy-making steps.  For example, in March’s Fed Minutes, it’s clear that the Fed’s concern about inflation is hugely diminished and that’s a major plus for the mortgage bond market.

Inflation causes mortgage rates to rise. The absence of inflation, therefore, helps them to fall.  This improves home affordability, among other things.

Similarly, the Fed Minutes note that real estate sales may have been worse throughout the winter months if not for low mortgage rates and the sense among Americans that home prices were troughing. We may infer, therefore, that rising rates may suppress home sales later this year.

Markets are always looking for clues from inside the Fed and the last meeting’s minute signal that the economy is on its way up.  If you’re looking for a bargain in the housing market, your window to act may be closing.

Homes are more affordable in Preston and across the nation as the housing market emerges from a slow winter season with mortgage rates still near 5 percent.

Soft housing and low rates are an excellent combination for home buyers but whereas home values rise with a gradual pace, mortgage rates change in an instant.  It’s something worth watching.

Each 0.25% increase to conventional or FHA rates adds approximately $16 per month for each $100,000 borrowed. Mortgage rate volatility can change your household budget.

If you’re trying to gauge whether rates will be rising or falling, one keyword for which to listen is “inflation”. Mortgage rates are highly responsive to inflation.

By definition, inflation is when a currency loses its value; when what used to cost $2.00 now costs $2.15. As consumers, we perceive inflation as goods becoming more expensive.  However, it’s not that goods are more expensive, per se. It’s that the dollars used to buy them are worth less.

This is a big deal to mortgage rates because mortgage bonds are denominated, bought, and sold in U.S. dollars.  As the dollar loses value to inflation, therefore, so does the value of every mortgage bond in existence. When bonds lose their value, investors don’t want them and bond prices fall.  Mortgage rates move opposite of bond prices. 

Prices down, rates up.

In today’s market, the relationship between inflation and mortgage rates is helping home buyers. The Cost of Living made its smallest annual gain in 6 years last month and the Fed has repeatedly said that inflation will stay low for some time. The combination is driving investors to buy mortgage bonds which, in turn, is suppresses rates.

So long as it lasts, the cost of homeownership will remain relatively low. Combined with the expiring tax credit, the timing to buy a Raleigh home may be as good as it gets.