Both 15- and 30-year mortgage rates fell to all-time lows — again — last week. Freddie Mac reported that mortgage rates fell from 3.75 percent to 3.67 on 30-year mortgages. This represents the lowest rates since records started being kept in the 1950s. Similarly, the 15-year mortgage, often used by those refinancing their homes, saw its average rate decline from 2.97 percent to 2.94 percent.
What low mortgage rates mean for the consumer.
The Mortgage Bankers Association reported that mortgage applications increased by 1.3 percent. This was primarily attributable to people seeking to refinance, however. The actual number of applications to buy new homes fell, as it has continued to do so for the past month. Generally speaking, mortgage activity increases when mortgage rates fall. However, this is usually only true for people who already have homes.
New home sales generally follow an uptick in the economy centered around jobs. While the overall economy posted very modest gains, 69,000 jobs were added for the month of May, leaving unemployment remaining at 8.2 percent, the construction industry suffered its biggest losses in two years.
Will low rates attract new homebuyers?
Overall, there is a feeling of uncertainty in the labor market, which affects not only those looking for work, but also those with jobs. It’s hard to think about buying a new home — potentially the biggest investment of your life — when you are worried your job might be the next payroll cut.
Further, the lowered interest rates might attract more people to the housing market, but it won’t necessarily qualify them for loans. The credit market has tightened significantly since the late-00s meltdown, making it increasingly harder for those who want to buy a house to obtain mortgages. The lowest interest rates in the world can’t get a person qualified for a loan.
Low interest rates are even seen by some as a drag on the economy, as opposed to its savior. Some worry that low interest rates accomplish little more than making speculation attractive, increasing inflation, rewarding poor investment decisions and relaxing fiscal discipline.
Lowered interest rates at a time when consumer confidence is on the rise and applications for new mortgages increasing would perhaps help to kick start the economy. Further, in the event of an uptick in the jobs market, it would be a prudent move to cut rates. But in the current market, there’s little indication that it’s having any effect one or another in the consumer housing market. Those who are willing and able to secure mortgages in this market will certainly benefit.
It’s not just mortgage rates that are down.
It’s not just the mortgage rates that are low, it’s the average housing cost that’s dipped, as well. Everyone else has to wait around for the jobs market to rebound and the credit market to loosen. By that time, it’s possible that interest rates and housing prices will be above their current levels.
Remember that interest rates and principle aren’t the only part of a mortgage you need to worry about. Depending on the fees and points, you can easily end up paying significantly more on a mortgage with a lower interest rate. Even at times of record low interest rates, take the sum total of a mortgage package into account when deciding where to obtain mortgage services.
One clear winner of the new, lower-than-low interest rates? Homeowners looking to refinance. The terms are generous and it’s far easier for a variety of logistical and financial reasons to refinance than it is to buy a new home entirely. This is why the number of mortgage applications have increased. If you’re a homeowner with equity in your home, now might be the time to start thinking about refinancing.
“Mortgage Rates Hit Record Low” was written by Nicholas Pell, a freelance writer based out of Los Angeles, CA.