As Interest Rates Stay Down Housing Markets Build

The US housing markets are showing signs of revival in most states but interest rates continue to stay down.  By the close of the first and second quarters of 2012, the benchmark rates remained the same as they had in the last two quarters of 2011. According to a national survey of large lenders done by Bankrate.com, the rate remains at 3.89 percent for the 30-year fixed rate mortgage*.  For 15-year fixed rate mortgages, the rate has remained at 3.16 percent over the past three months*.

Euro crisis, US repercussions

One factor that has kept interest rates is the ongoing economic crisis in Europe. This is the main cause of the low rates. With all the uncertainly that is caused by the instability of several European countries,  investors are choosing to play it safe by investing in US treasury bonds instead. The increased demand for these bonds is pushing down the yield. Mortgage rates always follow the same direction of bond yields. They are thus as low as treasury bond yields at the moment.

A recent announcement by the European Central Bank to buy bonds in Europe is expected to contain the looming Euro zone crisis.  Doing so will see investors gain the confidence to explore other investments other than US treasury bonds and this will have the effect of pushing interest rates higher as the real estate market becomes more brisk.

Until when?

Investors are certainly eager to see business get more brisk as the US housing markets pick up after the long lull. Experts predict that the current trend of low rates will remain until the upcoming November general elections are done.  This is because the market could go any which way depending on who emerges winner and the general fiscal and  real estate sector policies they will implement.

Stronger market, higher rates

A change in the current low interest rates may also come from the gains that are being seen in the US housing markets. Home prices are starting to rise. Builders are responding to demand for new houses which has gone up significantly. 

One of the largest building companies in the country,  Lennar Corporation, reports that they have received no less than 4,481 orders to construct new homes in the second quarter of 2012.  This is a 40 percent jump compared to the same period in 2011.

Refinancing challenges

Another factor affecting interest rates in the housing markets is the difficulties that homeowners are experiencing in securing refinancing mortgages. Many homeowners who bought homes at the height  of the housing boom are unable to take advantage of the low rates to refinance. This is because most of them owe more than their house is worth.

Government programs and incentives such as the Federal Housing Administration (FHA) and Home Affordable Refinance Program (HARP) did help homeowners to secure refinancing but it did not benefit all home owners.

An 11 June 2012 reduction by the FHA of fees for borrowers who have home loans under the scheme and revised the criteria to qualify for a refinancing loan. A Mortgages Bankers Association survey shortly after reported that applications for refinancing loans doubled.

Another weekly survey done at the end of the same month showed that applications had gone down drastically. As is the case with HARP 2.0,  some borrowers were disappointed by streamline refinancing. They came to learn that large lenders were only offering refinance mortgages for the loans that they already service.

Mortgage backed securities

Another factor that has affected the interest rates in the housing markets is mortgage backed securities. They move mortgage rates in the opposite direction. They have been some severe swings in the recent past and they have had the effect of leaving the mortgage rates still. 

Action is also expected with the QE3 plan  that may be out in the last month of September 2012.  More jobs will mean more buyers and that will push up demand and interest tips. According to the Labor Department, there were only 96,000 jobs were added in the month of August. This was despite a 8.1 percent fall in unemployment that is attributed to people leaving the workforce.  In fact, the rate of labor force participation fell to the lowest it has been since 1981.

What to do now?

It is pretty much a wait and see situation in the housing markets at the moment. Investors and home buyers are waiting to see how the mortgage rates will swing after the election and after the European Central Bank buys shares so at to stabilize the Euro Zone and save it from collapse.

The thing for prospective buyers to do would be to get into talks with lenders. The goal should be to take advantage of the still low interest rates that could swing upwards and sharply so when the expected events happen. It's best to be ready. 

*this is an estimate from an outside source, which may include fees and APR - contact a mortgage consultant to find out your interest rate