Mortgage rates in Houston and throughout the country eased this week as the Freddie Mac benchmark 30-year fixed rate mortgage fell to 4.97% from 5.05%. The 15-year fixed rate fell to 4.33% from 4.40% last week. Rates were even lower in our area, averaging 4.90% and 4.30% respectively. Despite the recent easing in rates, I feel like we have reason for longer term concern.
Even though mortgage rates have fallen, the one-, two-, and three-year Treasury rates have risen. In addition, the Federal Reserve’s program to buy back mortgage securities is coming to an end very soon. The Fed purchased $10 billion in mortgages over the past week. There are now only four weeks left in the program and $34 Billion left to purchase mortgages. Unless investors step up to the table, we will inevitably see rates rise. Even Fannie Mae’s economists see rates moving up to at least 5.6% by the end of the year.
The chart below shows the prices of Fannie Mae 4.5% bonds and it is easy to see how rates dropped (notice bond prices rose) when the Fed’s purchase program was implemented in the Fall of 2008. At that time, 30-year rates were around 6%. Therfore, there is no reason to expect why rates would not rise back to the 6% range without the Fed’s subsidy.
As we have said many times before, there is nothing wrong with a 5% mortgage! Couple these low rates with government tax incentives and distressed home prices and you have a unique home purchase opportunity in the Houston market.
