Interest rates found another new low for 2011.  The 30-year fixed rate eased from 4.61% to 4.60% for the week ending May 26th, 2011, according to Freddie Mac. A year ago the 30-year fixed mortgage averaged 4.84%. The 15-year fixed dropped from 3.80% to 3.78%. A year ago the 15-year fixed stood at 4.21%.

Softer rates are are result of slowing economic activity.  While the rates are good for home buyers and lending, it hasn’t been enough to stimulate any major activity in the real estate market.

Here’s my latest chart:

As you can see the trend at the beginning of the year was up.  I still believe this is the larger trend.  A sluggish economy is to thank for recent pause in interest rates; just be advised that rates seem to rise much faster than they fall.

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Info-graphic on 1 year of the 30-year fixed mortgage rate:

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After much volatility between November and February, interest rates have been stable over the last few weeks.  Freddie Mac reported the 30-year fixed rate drifted up to 4.87% from 4.86% for the week ending April 7th, 2011.  The 15-year fixed also increased just 0.1% to 4.10% leaving conditions favorable for people looking to purchase or refinance.

Economic data (with the notable exception of housing) has been positive with the economy adding another 216,000 jobs in March.  Of course there’s been much talk about inflation pressures lately and it’s likely they’ll be realized.  Oil prices are increasing quickly and it will soon start bleeding into other sectors of the economy.  Enjoy the low rates while they last.

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Rates improved on the crisis in Japan as many investors fled to the safety of the US Treasury Bonds.   Freddie Mac reported that the 30-year fixed mortgage rate dropped to an average of 4.76% compared to 4.88% just a week ago.  This is welcome relief for the housing market after run up in interest rates in late 2010 and early 2011.   The 15-year fixed dropped below 4% to 3.97% from 4.15%, leaving it well below the 4.33% from a year ago.

This will spur a surge in refinances and will likely add to purchase volume as well.  Also Americans continue to shed debt American’s financial obligation ratio dropped to the lowest percentage since 1995.

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Mortgage rates were largely unchanged over the last week despite turmoil continuing in the Middle East.  Freddie Mac reported the 30-year fixed rate increased just 0.1% to 4.88% from 4.87% last week.  The 15-year fixed rate stayed flat at 4.15% for the week.

In the last 12 months rates have been over 5% for only 1 week, keeping housing affordability high.  Unfortunately for interest rates the trend is pointing higher.  Mixed economic signals may keep rates flat for the short term but we’re definitely off cyclical lows and they look only to increase.  Lock in while you can.

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Interest rates have been falling back lately after a meteoric rise in the last 45 days of 2010.  Have you ever wondered why positive change in market forces takes quality time but a reversal of fortune happens in an instant?  It took the 30-year fixed rate 10.5 months to reach 4.17% from 5% and just another 45 days to completely reverse that.  While being largely local, the market forces behind real estate are national.  Lending on a national level drove the housing boom.  And some markets fared better than others; subprime loans were originated throughout the US.

This week Freddie Mac reported the 30-year fixed mortgage rate fell 0.7% from 4.95% last week to 4.87%.  Last year at this time the 30-year fixed averaged 4.97%.  Over the last 3 weeks interest rates have fallen like a soft rain after a 60 day drought.  I suggest you run outside and dance in it.  Buy an investment property; refinance your mortgage if you already haven’t.   Inflation is preparing to rear its ugly head on the markets again.  The economy is adding jobs, oil prices are gushing higher, and Americans are becoming more confident.  The flooding of the money supply’s consequence is around the corner.

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After a big jump in mortgage rates, Freddie Mac reported that interest rates pulled back for the week ending February 17th.  The 30-year fixed rate dropped to 5.0% from 5.05%.  The 15-year fixed dropped to 4.27% from 4.29%.  The 30-year rate is slightly higher than it was a year ago when it averaged 4.93%.  The 15-year is just below last year’s rate of 4.33%.

Rates have up significantly off of cyclical lows when the 30-year fixed was 4.17% in November.  Inflation fears have returned to the marketplace and though core inflation is in check, when housing is excluded, inflation is edging up.

Investors need to watch interest rates closely as just a 1% increase in rates can affect your cash flow as much as $756 per year on a $100,000 loan.

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The National Association of Realtors(NAR) just released it’s Quarterly Housing Affordability Index citing that the 4th quarter of 2010 was the most affordable quarter on record.  NAR started tracking home affordability in the 1970’s, factoring in median price, rates, p & i payments, payments as a % of income, and coming up with a composite number.

As of the 4th quarter, housing has never been more affordable.  This also means housing is very affordable for the investor community. Though rents have declined in the last 5 years, vacancy is also in decline and now stands a 9.4% which is a 1.3% improvement from Q3.

With rents stabilized and housing affordable, investors can receive high yields in many markets.  Further I think housing will show Q1 of 2011 less affordable than the last quarter due to higher rates alone.

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I put together this chart of interest rates in 2010.  You’ll see the bottom was reached in November and we’re quickly off this cyclical low.  Barring any major intervention, I expect rates to drift higher over the next few months.

- Ryan Hinricher, Senior Housing Analyst

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For many looking to refinance, the window is closed or is closing.  The refinance boom is coming to an end as the 30-year fixed rate jumped 0.15% to 4.61% this week, as reported by Freddie Mac.  Rates are up significantly off their bottom of 4.17% just a few weeks back.  The 15-year fixed rate also jumped 0.15% to 3.96%.

While rates are still below levels from a year ago, they are increasing.   Investors may see rates rise faster than rents leaving cash flow spreads more constrained than they were just a month ago.

I stand firm on an extended period of low home prices.  Many investors have been waiting for prices to drop further prior to purchasing.  The cost of borrowing will likely overshadow any further decreases we see in price.

- Ryan Hinricher, Senior Housing Analyst

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