Interest Rate Speculation
With a seasonally sluggish economy in the first quarter, there had been a great deal of speculation whether the Federal Reserve would maintain the current interest rates. On April 29, the Fed finished their April policy meeting and confirmed what speculators had been expecting – no pre-summer rate hike, keeping interest rates at a level that hs become seductive to new home buyers and refinancers. When will the bump happen? The Wall Street Journal suggests a June bump “looks increasingly unlikely. The next increase is then likely to happen in the fall, meaning that this summer will be a great time for new home buyers, provided there is inventory for them to purchase.
Spring Market – Demand Outpaces Supply
According to the National Association of Realtors, pending sales were up 11.1% over last year’s level (potentially attributed to the milder March many parts of the country experienced). While this is good for the average agent/broker in the short term, there are concerns about the effect on the long run.
“Demand appears to be stronger in several parts of the country, especially in metro areas that have seen solid job gains and firmer economic growth over the past year,” says Lawrence Yun, NAR’s chief economist. “While contract activity being up convincingly compared to a year ago is certainly good news, the increased number of traditional buyers who appear to be replacing investors paying in cash is even better news. It indicates this year’s activity is being driven by more long-term home owners.”
Given the low rates, “63 percent of all single-family originations in the first quarter of the year” were a result of refinancing, according to The National Association of Realtors and their sources at Freddie Mac. Those utilizing the Home Affordable Refinance Program will save roughly $290 monthly for the first year, or 1.8 percentage points.
Len Kiefer, Freddie Mac deputy chief economist, told HousingWire. “Refinance borrowers are primarily looking to reduce payments and pay down principal faster,” Kiefer continued. “We estimate that borrowers who refinanced in the first quarter will save on net more than $1.4 billion in interest payments over the first 12 months of their new loan. Nearly a third of borrowers who refinanced shortened their loan term.”