Low mortgage rates sticking around
Low mortgage rates are back. In fact, they never went away.
To the surprise of economists, lenders, and real estate professionals, home loan rates have steadily slipped, and Thursday hit 4.14 percent on average for a 30-year mortgage.
“It should be a lot higher,” said Ed McDonald, president of Salem Five Mortgage Co.
McDonald and many others in his industry expected mortgage rates to rise to about 5 percent by now, as the Federal Reserve continued to pare stimulus policies aimed at keeping long-term interest rates at low levels. Those policies focused on buying long-term bonds to the tune of $85 billion a month; since December the Fed has cut those purchases to $45 billion a month and plans to end them all together before the end of the year.
With the Fed buying less, the prices of bonds, including mortgage-backed securities, were expected to fall, which in turn drives up interest rates. As the Fed began its withdrawal, bond prices did fall and long-term rates, including mortgages, did rise, nudging above 4.5 percent at the beginning of the year.
But a series of worrisome geopolitical and economic events — from tensions in Ukraine to weak growth in the United States, China, and Brazil — spooked investors, prompting many to seek safer havens in the bond market. The flow of money back into bonds, particularly US Treasuries, pushed up prices and drove down interest rates.
The interest paid on 10-year Treasury notes, to which mortgages and other long-term rates are tied, fell to 2.48 percent by the end of May from 3 percent at the beginning of January. Mortgage rates have followed.
Even slight declines in mortgage rates translate into real savings for consumers. For example, on a $415,000 mortgage, a homeowner could have saved more than $1,142 annually borrowing at loan rates in late May as opposed to early January.
“It’s another bill to be paid, another month’s worth of grocery shopping,” said Amy Tierce, with Fairway Independent Mortgage in Newton.
Some homeowners who missed the chance to refinance more than a year ago are taking advantage of the lower rates, she said. Refinancing accounted for slightly more than half of all mortgage activity nationwide last week, a slight uptick from the previous weeks, according to the Mortgage Bankers Association.
But lower interest rates are providing little help to some buyers as housing prices in the Boston area rise quickly and affordable options remain slim.
Ed Giardina, a 34-year-old software engineer from Belmont, hopes to take advantage of the lower rates, but cannot find many homes in the Boston area for under $450,000. In recent months, he said, he and his wife have gone to several open houses only to find that the sellers already had offers.
“It’s definitely frustrating,” said Giardina, who worries that homeownership “is at this point unreachable.”
Some real estate agents fret that lower rates — and concerns that they will not last — are doing more harm than good in some local markets, encouraging buyers to bid up prices beyond what they would otherwise be comfortable paying, said Greg Kiely, manager of Century 21 Commonwealth in Newton.
“It’s making an already pressurized market even more pressurized,” Kiely said.
The median home price for April of this year in Greater Boston rose more than 9 percent during the same time in 2013 to $525,000, surpassing even the peaks of the last housing boom. In April 2005, the median price for a single family home was $484,450, according to the Greater Boston Association of Realtors.
Over the longer-term, mortgage rates are almost certain to rise, but it is still unclear when the climb will resume. Elizabeth Phelan, vice president for mortgage lending at Lowell-based Enterprise Bank, said she does not expect it to hit 5 percent in 2014.
“They’ll go up, because they are at historic lows“ Phelan said. But, “I don’t see a dramatic increase this calendar year.”