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 firstname.lastname@example.org or 505.982.3400.