Strong Economy and Low Inflation Prompt Fed Reserve To Lower Interest Rates

Yesterday afternoon, the Federal Reserve released a statement that was quite a vote of confidence for how the economy is doing.  The Fed Reserve’s statement included “…the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low.” and went on to say “Market-based measures of inflation compensation remain low;”.

As a result of the positive economic conditions, the Federal Open Market Committee announced it would lower the target range for the federal funds rate to 2 to 2-1/4 percent.  The committee went on to give a very positive outlook on the future economy as well saying that “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes…”.

Will the move by the Fed Reserve cause lower mortgage interest rates?

It’s hard to say if this announcement will prompt immediate lower interest rates as the mortgage market takes a little longer view of things.  However, while we don’t know if mortgage rates will decline or, if so by how much, I think, absent some major shift or change in the economy,  it is safe to say that mortgage rates are not going up at this time or in the very near future.

Mortgage interest rates have been at historic lows for years…

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Mortgage Interest Rates Drop to Lowest Rate In Over a Year

After mortgage interest rates on a 30-year fixed rate mortgage nearly hit 5 percent back in November, they have steadily declined and this past week fell to an average of 4.37% according to the Freddie Mac Primary Mortgage Market Survey.  Last weeks 30-year fixed rate mortgage rate of 4.37% was the lowest average rate report by the survey since Feb 8, 2018, when the average rates were 4.32%.

The outlook for mortgage interest rates looks promising as well with the most recent Fannie Mae Housing Forecast predicting the 30-year fixed rate will stay at 4.5% through the end of 2020.

30-Year Fixed Rate Mortgage Average In The U.S.

click on chart for live, interactive chart
30-Year Fixed Rate Mortgage Average In The U.S.

Home Loan Origination Data Showing Impact Of Interest Rates On Refi’s But Not Home Purchases In St Louis

Mortgage interest rates have been on the rise and hit their highest level in seven years toward the end of May, however, the higher rates don’t appear to be having an effect on the number of people in St Louis obtaining home loans yet.  The table below is based upon the latest data from ATTOM Data Research, just released yesterday, and shows that there were 6,830 home purchase mortgage loans obtained in the St Louis metro area during the 1st quarter of this year.  This represents an increase of nearly 10% from the number of home purchase mortgage loans that were obtained in St Louis a year ago.  Even if we go back to the first quarter of 2016, when the average 30-year fixed rate mortgage rate was below 4%, there were just 6,093 home purchase loan originations, 12.1% fewer than the most recent quarter.

The number of St Louis homeowners refinancing their home mortgages during the first quarter of this year dropped over 10% from a year ago and was down over 15% from the first quarter of 2016.

Mortgage Interest Rates Hit Highest Level In Over Seven Years

Freddie Mac has been tracking average mortgage rates since 1971 through their Primary Mortgage Market Survey® and yesterday it revealed that, as the chart below shows, the average interest rate on a 30-year fixed-rate mortgage was at 4.6%, the highest rate in over 7 years.  The last time mortgage interest rates were this high was back on May 5, 2011 when the 30-year rate hit 4.71%.

Even with the recent increase, mortgage interest rates are still reasonably low from a historical perspective.  As the second chart below illustrates, 20 years ago the rates were around 8 percent.  Mortgage interest rates then spent nearly a decade around the 5% – 6% range before beginning the descent after the housing bubble burst in 2008.

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Mortgage Interest Rates – 2018- Chart

Mortgage Interest Rates - 2018- Chart 

Mortgage Interest Rates – 1995 -2018- Chart

Mortgage Interest Rates - 2017- Chart 


Housing Boom Era Home Buying Strategies Returning

st louis mortgage refinance

Tyler Frank,
Paramount Mortgage
NMLS ID 942420

Housing Boom Era Type Home Buying Tactics Reappearing in St Louis Real Estate Market

During the home buying frenzy of the housing boom, which peaked in 2006, it was common to see home buyers, in an effort to beat out other buyers fighting for the same home, include price escalation clauses in their offers and make “naked” (contingency-free) offers.  It was also common for a seller to purposely price their home low in an effort to rein in multiple buyers and pit them against each other in a bidding war.  We are now seeing this all again as buyers compete to buy homes from an inventory of homes for sale that has shank dramatically in the past year.

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