Mortgage Rates: Where We've Been and Where We're Going

In 2012, the housing market got a boost from the long-term stability of mortgage rates. The Federal Reserve’s stimulus measures helped keep borrowing costs near record lows for much of last year, and through the first few months of 2012.

Low rates helped bring home buyers off the sidelines and into the market, driving home prices north across much of the country.

But mortgage rate trends shifted significantly in May 2013. That’s when Federal Reserve officials met for one of their Federal Open Market Committee (FOMC) meeting.
These meetings are a regular occurrence, taking place eight times a year. But the event that took place on May 1 sent waves through the stock market and the broader economy. That was when Fed officials said they could begin winding down their bond-buying stimulus program known as quantitative easing.

Shortly after that seemingly innocuous statement, the 10-year Treasury yield rose sharply. Mortgage rate trends tend to follow the up or down movements of the 10-year T-bond, and this time was no different.

Trend Watch: Current Mortgage Rates 1% Higher Than May

On May 2, the benchmark 30-year mortgage rate began an upward climb that put it well into 4% territory. During the week ending on July 12, the benchmark rate hit an 18-month high of 4.51%.

Delaying a purchase until later this year will likely increase the total cost of the purchase.

The sudden shift in mortgage rate trends alarmed housing analysts and home buyers alike.

Analysts are concerned that rising rates could slow the nascent recovery taking place in the housing market. Home buyers worry that higher borrowing costs could put homeownership out of reach entirely.

So far, rising rates haven’t had a major effect on home-buying activity. Refinancing activity, on the other hand, has dropped sharply in response to the recent rate trends. Last week, the Mortgage Bankers Association’s refinance index — a measure of refinancing activity based on application volume — fell to its lowest level since July 2011. The purchase index, which measures home-buying activity, rose slightly during the same period.

Home prices are a bigger concern in some parts of the country. Property prices in California and throughout the Southwest are rising fast enough to shrink the buyer pool. For instance, home prices in the San Francisco metro area jumped by more than 20% over the last year. This trend will definitely squeeze some buyers out of the market.

But these tremendous price gains are limited to a dozen or so metropolitan areas. In other parts of the country, prices are rising much more gradually or not at all. So there should still be plenty of housing demand through 2013 and into 2014.

Recent mortgage rate trends haven’t stopped the housing recovery. But they have generated plenty of headlines and caught the attention of home buyers across the country. Savvy buyers can put two and two together. With home prices rising in most cities, and mortgage rates following an overall upward trend, it’s clear that market conditions are changing.

From a home buyer’s perspective, the best days are in the rear-view mirror. Delaying a purchase until later this year will likely increase the total cost of the purchase, from both a pricing and interest standpoint.

Looking Ahead: Market and Rate Predictions Through 2013

So what can we expect in the weeks and months ahead? Home prices will likely continue along their current trajectory. A reversal of the current trend is unlikely. Housing inventories have shrunk considerably in most parts of the country, at a time when demand is rising. So we will likely see more of the price gains we’ve seen over the last year.

We anticipate a gradual rise in rates through the end of the year

As for mortgage rate trends, these are much harder to predict. The Federal Reserve’s stimulus program have kept lending rates near record lows for months. But there is a lot of concern about how and when the Fed will taper this program.

The mere mention of tapering caused mortgage rates to jump by more than a full percentage point.


 

Foreclosure Inventory Hits Lowest Level Since 2006

While judicial foreclosure auctions jumped 34% between June 2012 and last month, national foreclosure activity decreased 14% in June from the previous month, down to its lowest level since December 2006, according to locally based online foreclosure-data source RealtyTrac. The number of foreclosure filings decreased 19% from the previous six months and was down 23% from the first half of 2012.


Judicial foreclosure auctions were up less than 1% from May, but up 34% from June 2012, the firm also reports. Washington was the only Western state where bank repossessions and foreclosure auctions had jumped.

“Halfway through 2013, it is becoming increasingly evident that while foreclosures are no longer a problem nationally, they continue to be a thorn in the side of several state and local markets, particularly where a backlog of delayed distress has built up thanks to a lengthy foreclosure process,” said Daren Blomquist, VP at RealtyTrac, in a prepared statement. “The increases in judicial foreclosure auctions demonstrate that these delayed foreclosure cases are now being moved more quickly through to foreclosure completion.”

Blomquist added that given the rising home prices in most of these markets, now is an opportune time for lenders to dispose of these distressed properties, either at the foreclosure auction to a third-party buyer. They can also by repossess the property at the auction and subsequently sell it as a bank-owned home.

As GlobeSt.com reported last week, two cities in California and one in Oregon represented the western region of the country in RealtyTrac’s newly released top 15 retirement hot spots for real estate investing. Rancho Mirage, CA, ranked 7^th, Florence, OR, ranked 11^th and Seal Beach, CA, ranked 14^th in the firm’s report.

Home Prices Spike 10.7% Nationaly Year Over Year

 

Trulia, a leading online marketplace for home buyers, sellers, renters, and real estate professionals, today released the latest findings from the Trulia Price Monitor and the Trulia Rent Monitor. These indices are the earliest leading indicators available of trends in home prices and rents. Based on the for-sale homes and rentals listed on Trulia, these monitors take into account changes in the mix of listed homes and reflect trends in prices and rents for similar homes in similar neighborhoods through June 30, 2013. To read the full report, see here.

Asking Home Prices Show No Signs of Cooling Off … Yet
Nationally, asking home prices rose 10.7 percent year-over-year (Y-o-Y) in June. Excluding foreclosures, prices jumped 11.4 percent Y-o-Y, signaling that the current rise in asking prices is not primarily driven by the shift away from foreclosure to non-distressed homes for sale. However, the rate of increase in asking prices will eventually slow down as mortgage rates rise, inventory expands, and investor demand falls.

June 2013 Trulia Price Monitor Summary % change in # of 100 largest % change in asking asking prices metros with asking- prices, excluding price increases foreclosures Month-over-month, 1.5% Not reported 1.5% seasonally adjusted Quarter-over-quarter, 4.1% 98 4.5% seasonally adjusted Year-over-year 10.7% 99* 11.4% * Only Philadelphia saw a year-over-year decline, and only slightly, at -0.01%.

Asking Prices Rise in 99 of the 100 Largest Metros
Nationally, asking home prices bottomed in February 2012 – but the turnaround has been uneven. Prices first began to rebound two years ago in San Jose, Phoenix, Denver, Miami, and a few other housing markets where job growth or bargain buying started boosting prices earlier. Meanwhile, prices continued to fall in several East Coast and Midwest markets until three to six months ago. Now with the housing recovery in full swing, asking prices rose in 99 of the 100 largest metros. Among these recently bottoming markets, prices rose more than 7 percent in Edison-New Brunswick, NJ, Chicago, Lake County-Kenosha County, IL-WI, and Baltimore.

Housing Markets Where Asking Prices Rose Most After Bottoming Recently # U.S. Metro Y-o-Y% change in asking prices 1 Edison-New Brunswick, NJ 8.6% 2 Chicago, IL 8.4% 3 Lake County-Kenosha County, IL-WI 7.9% 4 Baltimore, MD 7.1% 5 St. Louis, MO-IL 6.4% 6 Fairfield County, CT 6.4% 7 Virginia Beach-Norfolk, VA-NC 5.3% 8 Gary, IN 5.3% 9 New Orleans, LA 4.6% 10 Newark, NJ-PA 3.1% Note: Among markets where prices bottomed in the last 6 months.

Rents Fall Where Asking Prices Skyrocket
Marking its biggest Y-o-Y increase since January, rents rose 2.8 percent Y-o-Y nationally in June. Rents climbed most in Houston, Miami, and Tampa-St. Petersburg, but fell in markets where asking prices were up more than 30 percent: Las Vegas, Oakland, and Sacramento. In fact, asking prices outpaced rents in 22 of the 25 largest rental markets. Only in Houston, New York, and Philadelphia did rents rise faster than asking prices.

Housing Markets Where Rents Fell Most # U.S. Metro Y-o-Y% change Y-o-Y% change in rents in asking prices 1 Las Vegas, NV -0.8% 30.8% 2 Oakland, CA -0.5% 34.2% 3 Sacramento, CA -0.4% 32.6% Among 25 largest rental markets.