Chart of the Day: Lowest Mortgage Rates in History
CARPE DIEM
Professor Mark J. Perry's Blog for Economics and Finance
Friday, August 13, 2010
About Me
- Name: Mark J. Perry
- Location: Washington, D.C., United States
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
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7 Comments:
That mortgage interest rates are at record lows is indeed noteworthy and encouraging, yes...
Hmmm, low mortage rates don't seem to be helping some it seems...
Note the following from the WaPo:
Might rates go even lower? Perhaps, but probably not by much, according to Celia Chen, senior director at Moody's Analytics. "I don't think they're going to fall much further; they're at a record right now," she said. "And even at this low rate, it doesn't seem to be doing much to support the housing market."...
Note the following from RISMedia:
Foreclosure Activity Increases 4% in July 2010, According to RealtyTrac
Five states account for more than 50% of national total
California alone accounted for 21% of the national total in July, with 66,910 properties receiving a foreclosure filing during the month—down 3% from the previous month and down 38% from July 2009.
With 51,557 properties receiving a foreclosure filing during the month, Florida accounted for 16% of the national total in July despite a nearly 9% decrease in foreclosure activity from July 2009.
From their website:
"Freddie Mac, one of America's biggest buyers of home mortgages, is a stockholder-owned corporation chartered by Congress in 1970 to keep money flowing to mortgage lenders in support of homeownership and rental housing."
If interest rates are so very low and the supply of housing is so high then let's get back to pre 1970 and wind down Freddie (and Fannie). Now is the time of opportunity to stop subsidising bad credit risk with taxpayer dollars.
How is this good news for the economy?
It means that the supply of loanable funds is high and the demand for mortgages is low.
Yeah, low mortgage rates are great if you want to buy or refinance a house right now, but the rates are low because fewer people are willing or able to buy or refinance right now and banks are flush with reserves, unwilling to lend. Fed policy and GSE purchases are also keeping rates low.
Are low rates a triumph or a tribulation? Does victory go to the market or the government?
I'd recommend you be more selective about the news you find cheerful.
Many households will benefit from lower mortgage rates:
Low Rates Finally Spark Refinancings
AUGUST 13, 2010
One reason activity could grow stronger is that today's rates are not only lower, but refinancing has become cheaper.
Around 60% of all borrowers with a 30-year fixed-rate loan could lower their rate by one percentage point given current rates, said Mahesh Swaminathan, senior mortgage strategist at Credit Suisse. But only about 38% could actually qualify for a refinanced loan because of the stricter loan standards, he said.
A borrower with a $300,000 30-year loan who refinanced last year at 5.25%, for example, could lower monthly payments by around $150 by refinancing today at 4.44%.
I went with a 3.625% 15-year refinance myself. What a steal of a deal with a quick 14-month payback on closing costs.
I should add that the required appraisal for a loan will shock you. Accordingly to my appraisal, my house is worth exactly the same amount as it was when I bought it 23 years ago, which is less than half of what it appraised for just three years ago.
Well, at least I can use that $300 appraisal to lower my taxes by $700 per year at next year’s appeal (my estimate). In addition, Michigan law caps any possible future taxable value increases to 5%-per-year or the rate of inflation (whichever is less), so my savings will be ongoing. Of course, we know there will be tax increases put on the ballot to negate that savings (we just voted in a 0.5 mill increase for the fire department).
I doubt if very many people who have bought their houses in the last five or ten years have enough equity to meet the 80% loan-to-value needed for a conforming loan unless they have a 15-year loan or they have been making accelerated payments on a 30-year loan, but the appraisal is still worthwhile. Be forewarned, lenders are asking for documentation for everything now.
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