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Mortgage Rates Remain Volatile Due to Economic Conflict

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Home loan interest rates reduced across the board due to continued economic conflict and uncertainty in the housing market. According to reports provided by loans.org, all three interest rates decreased at least 10 basis points for the week ending Aug. 29, 2013.

The 30-year fixed-rate mortgage averaged 4.39 percent. The rate decreased from last week’s average of 4.51 percent and was the largest change seen this week.

The 15-year FRM averaged 3.37 percent, down from 3.47 percent set last week.

Finally, the 5/1 adjustable-rate mortgage averaged 3.11 percent, down from last week’s average rate of 3.21 percent.

Yesterday, the 5-year treasury auction turned out worse than predicted. Travis Saling, senior loan officer for Courtesy Mortgage Company, said home loan interest rates dropped due to those poor results.

Saling said that any outside economic factors will usually take a week to show up on any weekly rate reports. He predicts that interest rates will increase once again by next week.

One noticeable change already present in the weekly report is the small distance between the fixed rates and the adjustable rates. Interest rates are usually significantly lower on adjustable loans and act as an incentive for borrowers to take on the riskier option. In the past few weeks, the difference in rates has been too small for borrowers to accept the potential danger.

On May 1 of this year, the gap between the two was practically non-existent. According to loans.org reports, the 15-year fixed rate was 2.66 percent and the 5/1 adjustable rate was 2.61 percent.

Saling said that for most borrowers, it was a “no-brainer” to go with a fixed rate.

Wavering home loan interest rates have tangibly impacted the housing market. The U.S. Department of Commerce reported that in July, new home sales dropped 13.4 percent.

But Saling is less worried about the reduced number of new home sales and more concerned about the drastic drop in refinances. Many homeowners have already taken advantage of the low rates and refinanced their mortgage. For homeowners who waited until this summer, the increase in interest rates has decreased the attractiveness of a refinance.

Saling said that if borrowers have a 5.5 percent interest rate on their home, and a 4.75 percent rate is offered through a refinance, they will turn it down. He said people typically want over a 1 percent reduction before they will actually proceed.

The reduction in refinances has opened up another area of the mortgage industry: cash out loans.

In May, which Saling refers to as the “peak for everything for the year,” his business saw only one cash out loan. Now that refinances have dwindled, cash out loans have filled the void. The loans now account for half of his business.

One of the biggest factors in the housing market this summer was the Federal Reserve’s decision to taper bond purchases. When Chairman Ben Bernanke announced this decision, it swept through the economy quickly and left a visible mark.

Although Saling realizes that the government’s bond purchases could not last forever, Bernanke’s announcement worried him because it created an “unbelievably insane overnight boom.”

“I wish he would have never opened his mouth,” Saling said.

Jason Staadt, senior mortgage consultant for American Financing, also recognizes that Bernanke’s decision to start bond purchases assisted the housing recovery, but his quick announcement overturned that growth.

“The market reacted so harshly. Bernanke is kind of kicking himself,” he said.

Staadt said that multiple elements, such as the “Taper Talk” and international conflicts have created a housing industry that is almost impossible to predict.

“The market is more volatile than we have seen in a long time,” he said. “It’s been a rollercoaster ride everyday to watch the rates go up and back down.”

Although economists predict what will happen to the housing market each week, plans to bolster the economy do not always turn out as expected. Staadt said that talks to bailout Greece were supposed to help interest rates, but they didn’t. Other recent variables such as the conflict in Syria could hurt the market, but no one knows for sure.

“Everybody has a different theory on what is happening,” he said.