Instead of an anticipated increase in mortgage rates after the end of mortgage-backed security purchasing, the Fed announced plans to maintain low interest rates for an “extended period,” providing a welcome boost to the fragile housing recovery. As the homebuyer credit deadline nears, government purchase applications made up nearly 50 percent of recent volume, but prices haven’t kept up with sales. See the following article from Housing Predictor for more on this.
Mortgage interest rates remain near historic lows, despite rising .04% in the last week, according to the Mortgage Bankers Association, providing strength to the nations home market. Many banking analysts expected rates would rise when the Federal Reserve halted buying mortgage-backed securities to strengthen the economy.
However, a sampling of ten major cities mortgage rates show little has changed in the month since the Fed stopped buying securities. Yesterday in a statement the Fed pledged to keep interest rates low for an “extended period” of time as it offered a slightly more positive assessment on the U.S. economy.
Following a two-day meeting, the federal open market committee restated that its main interest rate would remain at its target range of zero to 0.25%, where the rate has remained since December, 2008 in efforts to help the economy stabilize.
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“Rates on 30-year fixed-rate mortgages during the first quarter remained low, averaging 5.0 percent in Freddie Mac’s Primary Mortgage Market Survey,” said Frank Nothaft, Freddie Mac chief economist. “The median interest-rate savings for borrowers who refinanced their conventional loan in the first quarter was 0.9 percentage points. Refinances were about three-fourths of originations during the first quarter. In total, the lower rate translates into about $2 billion in interest savings for these borrowers over the first 12 months of the new loan.”
Fed policymakers are carefully treading the line between signaling the central bank is ready to raise interest rates, tightening monetary policy to counteract inflationary pressures and dampening concerns of a rise in interest rates. The sustained policy of lower rates should aid the home market in its recovery as the market moves into the busiest annual buying season of the year this summer.
“Purchase activity continues to increase as we approach the end of the homebuyer tax credit program,” according to Mortgage Bankers Vice President of Research and Economics Michael Fratantoni. The federal home buyers tax credit expires Friday. “Purchase applications were up almost 9 percent from a month ago, with a disproportionate share of the increase due to government purchase applications. Government applications for purchasing a home accounted for almost 49 percent of all purchase applications last week.”
The overall U.S. economy has been gaining momentum, according to fed policy makers. Consumer spending with retail sales have been growing, but with an estimated 10-million to 12-million mortgage holders not paying their loans the increase might be attributable to a rise in discretionary spending.
The troubled housing market is still experiencing a decline in home prices in the majority of markets surveyed by Housing Predictor, despite an upward movement in home sales. High unemployment levels in most areas of the country contribute to the lack of buyers able to enter the market.
This article has been republished from Housing Predictor. You can also view this article at Housing Predictor, a real estate analysis and forecasting site.