Home Affordability Impacted by Retail Sales Data
Home Affordability Impacted by Retail Sales
Consumer spending continues to rise nationwide, fueled by jobs growth and a rosier outlook for the U.S. economy.
Unfortunately for mortgage rate shoppers in Texas, it may also lead to higher mortgage rates later this week.
Thursday morning, the Census Bureau will release its U.S. Retail Sales data for December. The report is expected to show an 18th consecutive monthly increase, with analysts projecting sales volume higher by 0.4 percent from November.
This would be double the increase from last month, which saw a 0.2 percent increase in Retail Sales.
The Retail Sales report tallies receipts collected by retail and food-service stores nationwide. When the sum of these receipts rise, it puts pressure on mortgage rates to do the same. The connection is straight-forward.
Retail Sales are the largest part of “consumer spending” and consumer spending accounts for the majority of the U.S. economy — up to 70 percent, by some estimates.
As the economy goes, so go mortgage rates.
Remember: today’s ultra-low mortgage rates have been partially fueled by weak economies — both domestic and abroad — going back 4 years. Stock markets have sold off as economies have faltered worldwide, leading investors to seek refuge in the relative safety of U.S.-backed mortgage bond market. The new-found demand for mortgage-backed bonds has helped drop mortgage rates to levels never seen in history.
When economic recovery is apparent, therefore, we should expect a mortgage rate reversal, and should expect for it to happen quickly. Stock markets should rise; bond markets should fall. Mortgage rates will climb. Rate shoppers will lose.
Last week’s strong jobs report sparked hope for the U.S. economy. If Thursday Retail Sales data reveals similar strength, the risk in “floating” your mortgage rate may be too great. The safer play is to lock your rate today.
The Retail Sales report will be released at 8:30 AM ET.
Adjustable-Rate Mortgages Are A Relative Bargain Today
Is an ARM right for you?
Normally we think of adjustable rate mortgages (ARM) as good options when interest rates are high — which is certainly not the case today with interest rates bouncing around at historic lows.
For buyers and refinancing households, adjustable-rate mortgages are a relative bargain as compared to fixed-ones.
According to Freddie Mac’s weekly survey of more than 125 banks nationwide, mortgage applicants electing for a conventional ARM over a conventional fixed-rate mortgage will save 105 basis points on their next mortgage rate.
“Conventional” loans are loans backed by Fannie Mae or Freddie Mac.
Today’s average, conventional 30-year fixed rate mortgage rate is 3.91% plus points and closing costs. The average rate for a comparable 5-year ARM is 2.86%, plus points and closing costs.
In other words, for every $100,000 borrowed, a conventional 5-year adjustable-rate mortgage will save you $58.15 per month, or $698 per year.
That’s a 12 percent savings just for choosing an ARM.
12 percent is a big figure that adds up over 5 years — especially for households that plan to sell within those first 60 months anyway. There is little sense in paying the mortgage rate premium for a 30-year fixed-rate mortgage when a 5-year ARM is perfectly suitable.
For the reason why adjustable-rate mortgages continue are so much lower than their fixed-rate counterparts, look no further than the U.S. economy. ARMs reflect Wall Street’s short-term economic expectations; whereas fixed-rate mortgages reflect medium- to long-term expectations.
In the short-term, analysts expect the U.S. economy to grow slowly, with low levels of inflation. This supports the U.S. dollar, the currency in which mortgage bonds are denominated. When the dollar is strong, demand for mortgage bonds tends to increase.
This supports lower interest rates.
Conversely, over the longer-term, inflation is expected to return, which devalues the dollar and everything paid in it (e.g.; mortgage-backed bonds). This is why inflation is linked to higher mortgage rates. When inflation is present in the economy, mortgage bonds lose value, driving mortgage rates up.
Adjustable-rate mortgages aren’t perfect for everyone, but in the right situation, they can be a big money-saver and a helpful tool for stretching a household budget. Given today’s rates, the money-saving potential is larger than usual.
Before you choose an ARM, discuss your options with your loan officer.
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Refinance or Buy Now – Mortgage Payments Fall 12% Since Feb 2011
Low Rates - Good time to buy or refi.
As mortgage rates drop, so do house payments on new loans.
It’s a good time to consider refinancing your home, or making an offer on a new one. Mortgage payment affordability has never been so high in history.
The average 30-year fixed rate mortgage rate is now 3.94 percent – an all-time low – with an accompanying 0.8 discount points, according to Freddie Mac. This means that in order to get access to the 3.94 percent rate, homeowners and home buyers should expect to pay a loan fee equal to 0.8% of the borrowed amount, plus “normal” closing costs.
Here is how mortgage payments compare per $100,000 borrowed, then and now, not accounting for your individual tax-and-insurance escrow :
- February 10, 2011 : Payment of $539.88
- December 15, 2011 : Payment of $473.96
Last week, the average 30-year fixed rate mortgage rate was 3.99 percent with an accompanying 0.7 discount points.
Mortgage rates have been in decline for most of the year. Since peaking in early-February, the average home owner’s principal + interest payment on a 30-year fixed rate mortgage had now dropped by 12.2 percent.
For existing homeowners, the dramatic drop in payments is reason to reach out to your loan officer. A refinance could save you tens of thousands of dollars over the life of your loan — especially if you chose to refinance your mortgage into a 15-year program.
The 15-year mortgage, says Freddie Mac, is also at an all-time low, registering 3.21 percent with 0.8 discount points, on average.
Special FHA 203k loans allow you to update, repair, renovate your house – all with one loan at historically low interest rates!
For home buyers, today’s low rates present an interesting opportunity.
Mortgage rates are the key factor in determining your monthly housing payment so, with average mortgage rates below 4 percent, it’s no wonder home affordability is cresting. However, the housing market is showing signs of recovery. Home supplies are dwindling, buyer demand is rising, and the economy appears to be mending.
Home prices are expected to rise in 2012 and, as they do, they’ll take housing payments with them. The best time to buy a home may be now; before the recovery completes.
Save Money Long-Term With a 15-Year Fixed Rate Mortgage
If you think 30-year fixed rate mortgage rates are low today — 15-year fixed rates represent an even greater savings, long-term.
According to Freddie Mac’s weekly mortgage rate survey, the average 15-year fixed rate mortgage rate is now 3.27% nationwide with an accompanying 0.8 discount points. 1 discount point is a closing cost equal to 1 percent of your loan size.
The current 15-year fixed rate reading is just one tick above the all-time, 15-year fixed rate mortgage low of 3.26% set in October 2011.
If you’ve ever thought of “going 15″, it’s a terrific time to talk to your lender.
The primary benefit of using a 15-year fixed rate mortgage as opposed to a 30-year fixed rate one is that a 15-year fixed rate mortgage dramatically cuts the long-term interest costs of your loan. The downside is that monthly payments are relatively large.
At today’s mortgage rates, per $100,000 borrowed :
- 15-year : $704 principal + interest monthly
- 30-year : $477 principal + interest monthly
So, for homeowners opting for a 15-year fixed rate mortgage, the monthly principal + interest payments will be 48% higher as compared to a 30-year fixed rate mortgage of the same loan size.
TAXES and INSURANCE will be the same for either loan, since they are based on property value, not the terms of the loan.
Long-term, however, because the 15-year fixed rate mortgage interest rate is lower and because it pays off in half the time of a 30-year loan, a homeowner will save $45,000 in interest costs per $100,000 borrowed.
$45,000 per $100,000 borrowed is a huge amount of savings. It’s monies that can be used for college tuition, home improvement projects, retirement savings, or anything else.
That said, the 15-year fixed rate mortgage is not ideal for everyone.
Of course it requires higher monthly payments, a 15-year fixed rate mortgage may add stress to your household budget. Furthermore, once you commit to a 15-year loan term with your lender, you can’t revert back to a 30-year loan term without a refinance and refinances can be costly.
Be sure of yourself when selecting a 15-year fixed rate loan. The rewards are great, but the risks can be, too.
Have Mortgage Rates Bottomed Out?
Mortgage rates have hit bottom. Or, so it seems.
According to Freddie Mac’s weekly Primary Mortgage Market Survey, the average 30-year fixed rate mortgage is 4.00 percent nationwide — roughly the same rate as it’s been for 5 weeks.
During that times, rates have ranged between 3.97 and 4.02 percent with an accompanying 0.7 discount points, plus “typical” closing costs. Closing costs vary by state and 1 discount point is equal to 1 percent of your loan size.
In other words, to get the weekly, published Freddie Mac rate, borrowers should expect to pay a complete set of fees to their respective lenders. The larger the loan, the higher the costs. “Low-fee” and “no-fee” loans are available, too — typically in exchange for a slightly rate.
A breakdown of the Freddie Mac survey shows that interest rates and discount points vary by region. Typically, states in the West Region offer the lowest rates but with the highest costs. East Region states work in reverse; rates are often highest but the accompanying points are fewest.
The most recent mortgage rate breakdown by region shows :
- Northeast Region : 4.00%
- West Region : 3.96%
- Southeast Region : 4.06%
- North Central Region : 3.97%
- Southwest Region : 4.04%
What’s most notable, though, is that in all 4 regions, rates are well below their 2011 highs. Since mid-April, mortgage rates have been in descent, dropping for 5 consecutive months before reaching to their current, “rock-bottom” levels in early-November.
Since then, however, rates have idled and the forces that combined to make rates low are subsiding. The U.S. economy is showing signs of a rebirth; the Eurozone is edging closer to solvency; and the housing market is recovering.
So, if you’ve been wondering whether now is a good time to refinance, or whether higher rates will harm home affordability, the answer is yes. Get in touch with your loan officer to review your home loan options because, looking ahead to 2012, mortgage rates look poised to rise.
