Drop In Interest Rates

Dated: 02/06/2015

Views: 236

The headlines agree mortgage interest rates have dropped substantially below initial projections. Many who are considering purchasing a home, or moving up to their dream home, might think that they should wait to buy, because rates may continue to fall.A recent article on the Economists’ Outlook blog by the National Association of REALTORS® (NAR) provides insight into one major factor in the decline in interest rates, the crude oil price.“As of January 5, 2015, the U.S. Energy Information Administration (EIA) reported that the price of regular gasoline was $2.20/gallon, the lowest since gas prices peaked to about $ 4/gallon in May 2011.”You may have noticed that filling your gas tank has become substantially less expensive in recent months. A welcome change from the close to $5 a gallon that many Americans were paying this time last year. The average US household is projected to save around $550 in 2015.So what does that have to do with Interest Rates?NAR explains the correlation like this:“Lower oil prices mean lower inflation rate, which pushes down mortgage rates.”Based on Freddie Mac’s weekly mortgage survey as of  January 22, 2015, the 30-year fixed rate averaged 3.63% and the 15-year fixed rate averaged 2.93%.“The decline in oil prices is generally positive to households by way of the gas savings and lower mortgage payments. That savings will boost consumer spending in other areas. But there may be some layoffs in oil-producing states.”How long will rates stay low?No one really knows how long oil prices will continue to support low mortgage rates. In a New York Times article, the author points to the fact that “adding hundreds of billions of dollars to consumer spending” could start to have a “counter effect” on rates as the economy continues to strengthen.“If firms start hiring again, and wages increase — that’s when the level of all interest rates in the U.S. would increase.” Don’t wait too longThe low interest rates we are currently experiencing are not going to stay around forever. The current projections from Freddie Mac, Fannie Mae, NAR and the Mortgage Bankers Association all agree that interest rates will increase to between 4.3-5.4% by the end of 2015.

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Paul Snyder III

I am a specialist in the management and sale of bank owned AND investment properties throughout SE and Central Pennsylvania. Our team of (14) real estate agents and (3) support staff are here to e....

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