A continued decline in mortgage rates could have an added positive effect on housing demand for the fall home-buying season. The average 30 year fixed rate mortgage rate has dropped to a year-to-date low from 3.93% to 3.78% over the past three months, according to the Freddie Mac Primary Mortgage Market Survey (PMMS).
Once more, Mortgage Rates are tied to movements in the U.S. 10 Year Treasury Note. The U.S. 10 Year Treasury Note is widely considered to be the benchmark for the mortgage rates, since mortgages prepay on average between 7 – 10 years. The 10 Year Treasury Yield dropped to a 2.05% level as of Friday (09/08/17), the lowest level in almost a year, which in turn has been the driving force for this added decline in mortgage rates.
Many economic and political factors have played a part in the recent downward movement in mortgage rates:
U.S. inflation pressures continue to remain muted. Core PCE Inflation rose just 0.1% last month, and is still under the Fed’s 2.0% target range. Inflation expectations are the biggest factor in determining longer term treasury yields / mortgage rates.
Sustained foreign demand for U.S. sovereign debt. With the German 10 Year Bond yielding 0.31% and the Japanese 10 Year Bond yielding 0.01%, a U.S. 10 Year Bond yielding 2.05% is very high on a comparative basis, especially with the ECB (European Central Bank) planning on continuing its accommodative monetary policy.
The financial markets are still not hopeful that President Trump’s Tax Reform Plan will come to fruition by the midterm elections. A pro-growth tax reform plan would lead to a projected upturn in U.S. economic growth and inflation expectations, which would drive treasury yields / mortgage rates higher.
Ongoing geopolitical tensions between the U.S. and North Korea have also led to a market flight to safety, driving down treasury yields / mortgage rates.
For homebuyers who didn’t have the opportunity to buy a house in the summer, this added decline in mortgage rates give them an additional benefit of even lower monthly payments once they find the home they wish to buy in the coming autumn months.
Even with an expected decline in competition in the fall home buying season, if you are looking to buy a house, get preapproved with a mortgage lender. This will make your offer more competitive at a time when sellers might presumably be more willing to negotiate on an offer price.
However, current homeowners might not be able to trade up due to a continued lack of homes being available for sale. Another option for them could be to tap the newly added equity from the rising prices on their existing homes for a home improvement project by doing a cash-out refinance, which would even be more advantageous at these lower mortgage rates.
Whichever way you decide to proceed, the fall season is definitely shaping up to be a good time to purchase or refinance your home.
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