Interest Rates Remain in a Very Tight Range
Interest rates are going nowhere. Or at least they haven’t gone anywhere substantial since they dipped down below 4% for a 30 year fixed mortgage back in the beginning of December. In fact, for the past for the past 13 weeks they have stayed in a range between 3.85% and 3.95% staying below the 3.9% barrier for the 5th straight week. With the Fed keeping rates at this ridiculously low levels they keep hoping they are going to fix the housing market but they really have few tools left in their magic chest.
As of this morning, the average overnight rate for a fixed 30-year mortgage as reported by Bankrate.com is at 3.88% up 3 basis points from where we stood seven days ago. The benchmark 15 year fixed rate was at 3.16% up 2 basis points from last weeks level while the benchmark 5/1 adjustable rate mortgage stayed flat at 2.84% from 2.88% unchanged from where they stood 7 days ago. With the Fed’s decision to keep the rate for funds at 0% to 0.25% there really is little range for interest rates to get much lower. Banks need to make a profit and it costs them money to service loans so it is hard to see how the end cost of a loan can go down much from these levels.
The Fed is not a government agency as many think; instead it is controlled by banks who own, or hold notes on, a whole lot of non-performing assets that they would like to dispose of. By keeping rates low they thought that more people will see the value in obtaining long term loans at unheard of rates would eat up all the inventory. That has happened as you can easily see by a strong real estate market and shrinking inventories. Indeed those who borrow responsibly in today’s market and lock in rates for a home they can stay in for up to 30 years will be very handsomely rewarded. Talk has switched to the fact that the remaining distressed inventory will not be greatly affected by monetary policy and even the President of the St. Louis Federal Reserve Bank has gone on the record that he feels the housing market is largely out of the Fed’s hands at this point. While prices in south Florida have stabilized in many housing categories we are expecting higher foreclosure numbers this year and any sustainable pricing increases seem at least a year out. The handwriting on the wall would point to inflation heading our way at some point and timing will be critical.
The metrics may never look better for buyers to balance the lowest prices and lowest rates which should add up to another great year for the real estate market in south Florida. Rates and prices that may never be lower and the potential of inflation that will ultimately mean higher prices down the road mean quite simply a golden opportunity that may never be repeated.