Mortgage rage analysis is available in great heaps, all about the internet and on a daily basis, in terse and whispered tones, from the Wall Street Journal. Many of the analysts, consultants, financial advisors, investors and best selling authors that make a living talking about the money markets know more about this than most of us care to. But as it happens, we are at the crux of – something, as the housing and mortgage markets finally appear to be shifting out of overdrive and dropping within range of the legal speed limit.
The Gold and Land Rush
Over the last four years housing prices have gone through a steep appreciation while interest rates have bounced around record low levels. A look at interest rates over the last three years in graph form shows the usual spikes and drops from month to month. However for the first thirty of those months, the variation on interest rates for a thirty year fixed rate loan fluctuated between 5.50% and 6.50%. In only four of those thirty three months did the rate reach 6.50%, the last time being in July of 2004.
The Slowing Pace
For the last six months however, the fluctuation has been between 6.25% to the 6.93% that was posted today, in late July. For only a few weeks of that period did the rate drop below 6.50%. At the same time, the appreciation in housing rates has slowed overall, despite the fact that spring and summer are periods of active home buying. In some markets, including areas of California (Gasp!) housing prices have flattened completely and even shown some backsliding. Clearly, the double whammy of big jumps in home values and record low interest rates has come to some sort of halt – whether it is a pause or a long term trend remains to be seen.
Guesses – Educated and Otherwise
It’s also a fair guess that uncertainty about our in the economy that will continue, to the degree that it is fed by high oil prices, the trade deficit and runaway government spending. None of those indexes will change anytime soon. That said, there is no sudden up tick on the economic horizon that might spark a resumption of the housing and mortgage hyperactivity. The Federal Reserve Board meets every six weeks and at each of the last seventeen they have hiked the prime rate a quarter of a point. While conventional speculation has it that they are only likely to do it once more this year, the seventeen repetitions have clearly had a steady impact on interest rates, as they have crept up half a percentage point in the last seven months or so.
Mortgage rates basically follow the actions of the Fed. They were at record lows, due to actions the Fed took as an effort to breath life into a moribund economy. They seem to feel that particular task has been completed. Moreover, they are operating with a new man at the tiller and we are likely to see a more cautious Federal Reserve Board as a result – at least for a while. So there aren’t a lot of tea leaves that suggest mortgage rates will be retreating to their previous lows, as they steadily approach the seven percent mark. Every indication is that this cycle of low interest combined with a spurt in refinancing loans to home owning consumers has reached its high point.
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