First let’s talk about interest rates. Recently the 30-year and 15-year mortgage rates (which are tied to the benchmark yield on the 10-year US Treasury bond) have begun to creep upward. The average rate on the 30-year fixed mortgage hovered near historic lows the week of March 12th, making home-buying and refinancing more attractive to those who can qualify. Then on Wednesday, March 14th the yield on the 10-year Bond shot higher by 7% in one day, closing the day at around 2.28%. This impacted mortgage rates right away. Sure enough, mortgage buyer Freddie Mac said on Thursday (March 15th) that the rate on the 30-year loan had increased to 3.92 percent.
That’s up from 3.88 percent the previous week. The rate touched 3.87 percent four weeks ago, the lowest since long-term mortgages began in the 1950s. The average on the 15-year fixed mortgage rose to 3.16 percent, up from a record low of 3.13 percent last week. Interest rates on the 30-year loan have been below 4 percent for three months. Low rates are among the most important factors that may cause a turnaround for the depressed housing market. The quandary is that many people can’t qualify for the mortgages. Builders are more optimistic after seeing more folks interested in buying a home. Construction has picked up and builders are requesting more permits to build single-family homes. Keeping mortgage rates at historic lows is essential to solving the housing crisis.
A key reason for the optimism is the improving job market. Employers have added an average 244,600 net jobs per month from December through February. That has helped lower the unemployment rate to 8.3 percent, the lowest level in nearly three years. Frank Nothaft, Freddie Mac’s chief economist, said Thursday the positive February jobs report caused yields on U.S. Treasury bonds to increase over the week. “An upbeat employment report for February caused U.S. Treasury bond yields to increase over the week and mortgage rates followed,” Mr. Nothaft commented. “The economy gained 227,000 jobs, above the market consensus forecast, and revisions added another 61,000 to January and December.”
Mr. Nothaft also pointed out that job growth over the last six months was the strongest since 2006. In addition, the Federal Reserve’s March 13th policy F.O.M.C. noted that it anticipates the unemployment rate will decline gradually toward levels that it judges to be consistent with its mandate to achieve maximum employment with stable prices and moderate long-term interest rates. At the same time hundreds of thousands of homeowners in states like California, Arizona, Florida and throughout the Midwest find that their homes have dropped in value to the point they’re worth less than the balance they owe on their existing mortgages.
This continues to contribute to a historically high inventory of unsold homes according to a recent report by MarketWatch.com. What can the government do? The question of whether “underwater” borrowers should receive help from the government to have some equity in their home so they might sell and move to areas where more or better jobs are available is at the nucleus of battle in Washington between a major U.S. housing regulator and the Obama administration. Under growing political pressure, Ed DeMarco, the acting director of the Federal Housing Finance Agency has been asked to cut the amount underwater borrowers owe for mortgages.
This is a process known as principal reduction. Roughly, 56 percent of all U.S. mortgages are owned or guaranteed by Fannie Mae and Freddie Mac. DeMarco has been opposed to such cuts and has argued that such action would cost taxpayers $100 billion. The dispute became heated last week, when a group of Democrat House members called for DeMarco to resign if he wasn’t going to cut principal. DeMarco said in an interview last month that issues like job mobility are the type of broader judgments that are the responsibility of elected officials in Congress and not the FHFA.
This process is also known as the Home Affordable Refinance Program (HARP). Many lawmakers want this program streamlined and more readily accessible to more “underwater” homeowners. The residential rental property market will be impacted eventually. President Obama has recently called for a package of proposals to help the housing market and reignite the economy after four years of foreclosures and falling home prices. The proposal includes a pilot program to sell foreclosed properties in bulk to investors who maintain the homes as rentals, according to the White House. Property Managers should stay tuned!