US home­buy­ers ad­vised to be pa­tient as mort­gage rates surge

Yield on 10-year trea­sury bond zooms

Kuwait Times - - BUSINESS -

With mort­gage rates surg­ing fol­low­ing the elec­tion win of Don­ald Trump, home­buy­ers may feel com­pelled to snap up loans be­fore rates rocket even higher. But hous­ing ex­perts say con­sumers shouldn’t get car­ried away by the post-elec­tion wave.

The ad­vance of the past week or so, stoked by a sur­prise vic­tory that turned eco­nomic ex­pec­ta­tions on their head, could soon set­tle. “Con­sumers con­sid­er­ing buy­ing or re­fi­nanc­ing now should stay pa­tient, as we’ll likely see rates sta­bi­lize once markets find a new equi­lib­rium,” says Erin Lantz, vice pres­i­dent of mort­gages at Zil­low.

In the week ended Thurs­day, the av­er­age rate on the 30-year fixed-rate loan jumped to 3.94 per­cent from 3.57 per­cent the pre­vi­ous week, mort­gage com­pany Fred­die Mac re­ported. That put the bench­mark rate close to its year-ago level of 3.97 per­cent.

The av­er­age for a 15-year mort­gage, a pop­u­lar choice for peo­ple who are re­fi­nanc­ing, climbed to 3.14 per­cent from 2.88 per­cent. The rate rise was pow­ered by a sus­tained de­cline in US gov­ern­ment bond prices in the days af­ter Trump’s vic­tory be­came known early last Wed­nes­day. Bond in­vestors looked to­ward tax cuts and beefed-up spend­ing to up­grade roads, bridges and air­ports un­der a Trump ad­min­is­tra­tion, which could fuel in­fla­tion. That would de­press prices of long-term Trea­sury bonds be­cause in­fla­tion would erode their value over time. The sell­ing wave dubbed the “Trump Dump” lifted bond yields, which move op­po­site to prices and in­flu­ence long-term mort­gage rates. The yield on the 10-year Trea­sury bond zoomed to 2.06 per­cent last Wed­nes­day from 1.87 per­cent on Elec­tion Day Tues­day. By this Thurs­day morn­ing, it was at 2.25 per­cent Thurs­day.

Adding to the ex­pec­ta­tions of higher in­ter­est rates, Fed­eral Re­serve Chair Janet Yellen sketched a pic­ture Thurs­day of an im­prov­ing US econ­omy and said the case for an in­crease in rates has strength­ened. The Fed is widely ex­pected to raise rates when it meets in mid-De­cem­ber. Spilling over into the mort­gage mar­ket, prospec­tive buy­ers have ap­peared to be stream­ing in. “We are see­ing bor­rower de­mand up,” said Sam Mis­chner, se­nior vice pres­i­dent of sales at Lend­ingTree.

Still, mort­gage rates re­main near his­tor­i­cally low lev­els. The all-time low for the 30-year rate was 3.31 per­cent in Novem­ber 2012.

Global in­sight

“Rates are so low,” said Pa­trick New­port, US econ­o­mist at HIS Global In­sight. If the new ex­pec­ta­tions for the econ­omy and in­ter­est rates “make a dent in the hous­ing mar­ket, it shouldn’t be much.” The low rates have helped boost home sales and prices this year. But there are eco­nomic un­knowns as the new ad­min­is­tra­tion’s eco­nomic pol­icy starts to take shape. And con­straints on home pur­chases like tight credit stan­dards and af­ford­abil­ity re­main, bol­stered by mar­ket ex­pec­ta­tions of fur­ther rate in­creases.

Steadily ris­ing rates would ul­ti­mately limit the num­ber of pos­si­ble buy­ers and how much they can af­ford to pay. And ex­ist­ing home­own­ers who might oth­er­wise be look­ing for an up­grade could choose to stay put rather than face higher in­ter­est costs.

The median sales price of ex­ist­ing homes has climbed 5.6 per­cent from a year ago to $234,200, ac­cord­ing to the Na­tional As­so­ci­a­tion of Real­tors. To cal­cu­late av­er­age mort­gage rates, Fred­die Mac sur­veys lenders across the coun­try be­tween Mon­day and Wed­nes­day each week.

The av­er­age doesn’t in­clude ex­tra fees, known as points, which most bor­row­ers must pay to get the lowest rates. One point equals 1 per­cent of the loan amount. The av­er­age fee for a 30-year mort­gage was un­changed from last week at 0.5 point. The fee for a 15-year loan also held steady at 0.5 point. Rates on ad­justable five-year mort­gages av­er­aged 3.07 per­cent, up sharply from 2.88 per­cent. — AP

AN­DOVER: A “Sold” sign is placed front of a house in An­dover, Mas­sachusetts. Fred­die Mac re­ported on the week’s mort­gage rates. —AP

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