The year so far, and look­ing ahead


Spring is here, and we’ve made it through the first quar­ter of 2015. Hooray! Let’s take a look at re­cent trends and some pro­jec­tions that may guide us through the rest of the year.

In­ter­est Rates Dropped. Thiswas a real sur­prise. Ini­tial pro­jec­tions for 2015 were for in­creases in in­ter­est rates. Peo­ple who are con­sid­er­ing buy­ing a first home or mov­ing up to a big­ger home may think they should wait be­cause rates may fall fur­ther. So what hap­pened? One ma­jor fac­tor is the price of crude oil. Fill­ing your gas tank was far less ex­pen­sive than it has been in re­cent months. In fact, in Jan­uary a Na­tional As­so­ci­a­tion of Re­al­tors (NAR) blog stated, “As of Jan­uary 5, 2015, the U.S. En­ergy In­for­ma­tion Ad­min­is­tra­tion re­ported that the price of regular gaso­line was $2.20/gal­lon, the low­est since gas prices peaked to about $4/gal­lon in May 2011.” NAR goes on to say that lower oil prices mean a lower in­fla­tion rate, which pushes down mort­gage rates.

Based on Fred­die Mac’s weekly mort­gage sur­vey as of Jan. 22, the 30-year fixed rate av­er­aged 3.63 per­cent and the 15-year fixed rate av­er­aged 2.93 per­cent. NAR con­tin­ues, “The decline in oil prices is gen­er­ally pos­i­tive to house­holds by way of the gas sav­ings and lower mort­gage pay- ments. That sav­ings will boost con­sumer spend­ing in other ar­eas. But there may be some lay­offs in oil-pro­duc­ing states.”

No one re­ally knows how long oil prices will con­tinue to sup­port low mort­gage rates. As I write this in March, prices have al­ready in­creased al­most 50 cents from their sub-$2 lows. In a New York Times ar­ti­cle from late last year, the au­thor points to the fact that “adding hun­dreds of bil­lions of dol­lars to con­sumer spend­ing” could start to have a “counter ef­fect” on rates as the econ­omy con­tin­ues to strengthen. “If firms start hir­ing again, and wages in­crease — that’s when the level of all in­ter­est rates in the U.S. would in­crease.”

Con­sumer Con­fi­dence Hit a 10 Year High. The Uni­ver­sity of Michi­gan’s Sur­veys of Con­sumers for Jan­uary showed “Con­sumer op­ti­mism reached the high­est level in the past decade in the Jan­uary 2015 sur­vey… Con­sumers judged prospects for the na­tional econ­omy as the best in a decade, with half of all con­sumers ex­pect­ing that the eco­nomic ex­pan­sion will con­tinue for an­other five years. The an­tic­i­pated strength in the over­all econ­omy has been ac­com­pa­nied by more fa­vor­able in­come and em­ploy­ment ex­pec­ta­tions.” In ad­di­tion, more young adults ap­pear to be mov­ing into their own res­i­dences. A re­cent cen­sus re­port shows that house­hold for­ma­tions grew from -205,000 in De­cem­ber 2013 to +2.001 mil­lion in De­cem­ber of 2014. This is an as­ton­ish­ing 1,076 per­cent pos­i­tive change, year over year, and well above the longterm av­er­age of +1.147 mil­lion.

Home Price Pro­jec­tions. The Home Price Ex­pec­ta­tion Sur­vey takes the pro­jec­tions of over 100 econ­o­mists, real-es­tate ex­perts and in­vest­ment and mar­ket strate­gists and av­er­ages then into a sin­gle num­ber. The most re­cent sur­vey projects that home val­ues will ap­pre­ci­ate by 4.4 per­cent in 2015, the cu­mu­la­tive ap­pre­ci­a­tion will be 19.3 per­cent by 2019, and the av­er­age an­nual ap­pre­ci­a­tion will be 3.6 per­cent over the next 5 years. Even the ex­perts mak­ing up the most bear­ish quar­tile of the sur­vey still are pro­ject­ing a cu­mu­la­tive ap­pre­ci­a­tion of 11.7 per­cent by 2019.

Higher In­ter­est Rates. Fed­eral Re­serve Board Chair Janet Yellen has said that in­ter­est rates will in­crease this year. The Mort­gage Bankers As­so­ci­a­tion, NAR, Fan­nie Mae, and Fred­die Mac have all pro­jected in­creased mort­gage in­ter­est rates this year. Their pro­jec­tions for rates by year end on 30-year fixed-rate loans range from 4.2 per­cent to 4.6 per­cent.

The take­away from my per­spec­tive is that although rates are low now, they are ex­pected to in­crease. Home prices are ex­pected to rise and with con­sumers show­ing con­fi­dence in the econ­omy, more peo­ple will be buy­ing homes. The bot­tom line? If you’re plan­ning to buy or re­fi­nance, don’t wait!

Fran­cis Phillips is se­nior mort­gage loan prig­i­na­tor with First Choice Loan Ser­vices Inc. in Santa Fe. He has served as direc­tor of busi­ness devel­op­ment for na­tional mort­gage com­pa­nies. He and his mort­gage part­ners have funded and built three homes for Santa Fe Habi­tat for Hu­man­ity. Con­tact him at or 505.982.3400.

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