Summer gives way to projection season – which way will housing and mortgages head?

The summer selling season has ended, which means that it is time for us to enter another “projection season” and consider what the indicators and professionals have to say about the direction in which the housing and mortgage markets are heading.

When we met last year for this same discussion, fixed 30-year mortgages were in the 4.1x range – currently, they are dancing in the +/-4.00 neighborhood. Back then, pundits were predicting that, by now, interest rates would be well into the 5.00s leaving buyers to hope that more inventory would hit the market – inventory that included “the right one” on which they could pounce before rates went up.

But a funny thing happened on the way to the rate increase. 

Among other “events,” oil prices took a nosedive, international contagion infected the markets (politically: unrest in the Ukraine and Middle East; financially: crises in Greece and China), mixed rate messages from the Fed and, most recently, the Fed, on September 17, deciding to stand pat on its key interest rate hand that left it where it’s been since December 2008 – near zero. As Fed Chair Janet Yellen noted, “The situation abroad bears close watching. Heightened concerns about growth in China and other emerging market economies have led to notable volatility in financial markets.”1

The Fed’s other concern is inflation – or lack thereof. Because the current rate is below its target of two percent per year, they are warily watching and waiting for it to rise above that benchmark with an eye on an improving labor market and expanding economy against the backdrop of always-potential overseas instability.2 In other words, they’re continuing to hedge their bets – especially since there are still two more Fed meetings left in the year, in October and December, at which point they could pull the increase trigger.

In the meantime, mortgage rates sharply dropped shortly after the Fed’s announcement, which means…well, let’s look at that announcement in its recent financial context.

According to the S&P/Case-Shiller Home Price Indices, monthly and year-over-year home prices continue to rise (the September 21 update is pending as of this writing). In its last report in August, David Blitzer, Managing Director and Chairman of the Index Committee, noted that, barring a Fed rate hike (which didn’t happen) and a massive bear market, the data indicated that the housing market should maintain its upward trend:

  • Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007
  • Housing starts topped 1.2 million units at annual rates, with almost 2/3 of the total in single-family homes
  • Sales of new homes are trending higher3

As Mr. Blitzer said, “These data point to a stronger housing sector to support the economy.”4

So, here we are again – almost a carbon copy of last year at this time (but for different social and economic reasons). We’re experiencing a strong housing market and still some of the best mortgage rates in years: current average rates on a 30-year fixed rate mortgage are at 3.91 – 2015 probably won’t break 2012’s annual record of 3.66, but it’s still on pace to beat 2013’s 3.98.5 And, again, we are faced with the same questions. If you’re a seller, do you sell now? If you’re a buyer, do you buy now? Or, do you wait?

The answers is, as always, “It’s up to you, Mr. and Ms. Buyer/Seller.” Common wisdom states that rates have nowhere to go but up – of course, that was also the common wisdom last year. World events are as unpredictable today as they were in 2014 and will be in 2016. So is the Fed. However, it did back off of its Qualitative Easing bond-buying program in 2014, just as it said it would, and it continues to drop strong hints – and expert Fed watchers concur – that it will raise rates in the future.

The best advice is for buyers and sellers to simply go with the flow and do what feels and is right for now, knowing that the only constant in mortgage rates – as in life – is change.

  1. Gillespie, Patrick and Long, Heather, “No liftoff: Federal Reserve leaves rates near 0%,” CNNMoney, September 17, 2015, http://money.cnn.com/2015/09/17/news/economy/federal-reserve-interest-rates/index.html.
  2. Green, Dan, “Mortgage Rates Drop After Fed Fails To Raise Fed Funds Rate,” The Mortgage Reports, September 18, 2015, http://themortgagereports.com/18164/mortgage-rates-fed-funds-rate-fomc-federal-reservre-september-2015.
  3. S&P Dow Jones Indices, “Home Prices Continue Upward Trend According to the S&P/Case-Shiller Home Price Indices,” Financial Content, August 25, 2015, http://markets.financialcontent.com/stocks/news/read?GUID=30509001.
  4. S&P Dow Jones Indices, August 2015.
  5. “30-Year Fixed-Mortgage Ratings Since 1971,” Freddie Mac, 2015, http://www.freddiemac.com/pmms/pmms30.htm.
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Sep 23, 2015

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