Mortgage Rates Edge to a Six-Month Low
Mortgage rates have edged down to a six-month low, defying the predictions of analysts and adding more heat to the already blazing Southern California housing market.
The lower rates will bring some first-time buyers into the market who previously couldn’t afford to buy a home. Other consumers will qualify for a little larger mortgage than before, providing a psychological lift and perhaps more home choices.
But several analysts said the primary factor that will continue to drive the Southern California market is anxiety--the fear of not being able to get a home before rates rise or double-digit price increases push desirable properties out of reach.
“I’m not sure the rate cut can do much more than what’s already happening,” said Leslie Appleton-Young, chief economist for the California Assn. of Realtors. “I think it can only exacerbate an extremely tight market with stronger demand.”
The reduction in mortgage rates in recent weeks has led to little change in home loan applications so far. At Countrywide Home Loans, for instance, the increase in applications was hardly noticeable last week, said Stephen Brandt, senior vice president at the Calabasas-based lender.
“The average consumer is not aware that rates have come down,” he said. “But the people who call us are pleasantly surprised to hear what rates are,” he said. Of the rate reduction, he said, “I think this can only have a positive effect on real estate and could stimulate demand more so than what already exists.”
The average rate on 30-year fixed mortgages declined to 6.76% last week from 6.81% a week earlier. The latest figure remains well below the year-ago rate of 7.24%, according to Freddie Mac, a major secondary mortgage lender.
The monthly principal and interest payment for a $250,000 home, assuming 10% down on a fixed-rate mortgage, fell to $1,460 from $1,533 a year ago. The income needed to qualify for the same loan decreased about $3,000 to $80,732.
Low interest rates have provoked surging sales, driving the inventory of homes for sale under $1 million in the Southland to record lows. Sales in Los Angeles County grew 26% in April from a year earlier and in Orange County by 32%, according to DataQuick Information Systems Inc.
Activity has been strong across the country. Existing-home sales jumped again in April to an annual pace of 5.79million units, the third-highest level on record, according to the National Assn. of Realtors. During the first four months of the year, new- and existing-home sales beat last year’s record pace by 8%.
Analysts had widely predicted that rates would edge up by midyear as the economy picked up speed. Instead, economic indicators have been mixed amid disappointing corporate reports and stock performances and growing uncertainty about global conflicts. Concerns that rapid growth would lead to inflation have diminished for the time being.
Many investors are sinking money into mortgage-backed securities, which offer higher yields than other fixed-income investments such as money market accounts and certificates of deposit. That infusion of capital has pushed down the cost of borrowing and lowered rates.
But cheaper mortgages will probably provide fewer benefits to the national economy than they did when rates dropped to a 30-year low six months ago. Although sales of existing homes are expected to remain strong on a historic basis, analysts do not expect them to top last year’s record pace. Moreover, the number of people likely to refinance their home loans is smaller now, leading to a smaller benefit for the U.S. economy from consumers with equity to spend.
“The pool of people who are savvy and diligent enough to refinance their homes at current interest rates is evaporating quickly because of the boom that already has taken place,” said Mark Zandi, an analyst at Economy.com, a research firm in West Chester, Pa.
Still, loan refinancings in the Southland remain ahead of their strong pace from last year, adding a boost to the regional economy. In Los Angeles County, such loans have surged 40% from a year earlier, DataQuick said.
In addition, home equity loans, based on the prime lending rate, have more than doubled in volume from a year earlier to $922 million, Brandt of Countrywide said. Consumers have been borrowing against their homes to bolster their savings or to pay off higher-interest debts from credit cards, he said.
Analysts now predict mortgage rates will begin rising by late summer if the economy continues to improve. They generally predict borrowing costs will rise to between just under 7% and 7.5% by December. Those estimates, though significantly higher than the current rate, are well under the average of the last three decades.
“The economy is getting better, and while it continues to get better, the Fed will start to raise rates,” said Keith Gumbinger, vice president at HSH Associates, a data firm in New Jersey.
*
For recent coverage of the regional real estate market, go to www.latimes.com/homeprices.
