Millennials and other wannabe first-time home buyers ring in the New Year of 2015 with the best opportunity in years to purchase a house. A trend toward low mortgage rates coupled with a big slowdown in rising prices have come together — without a lot of hoopla — to boost affordability and put buyers back in the driver’s seat of the housing market.

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A slow but significant drop in mortgage rates

The closing weeks of 2014 saw the average 30-year mortgage interest rate drop below 4 percent nationwide. Rates fell to their lowest levels of the year and their best, in more than a year and a half or more. Compared to January 2014, rates were down nearly three-quarters of one percent. According to Freddie Mac research, the typical home buyer could save more than 30 percent on the cost of a mortgage.

Perhaps because rates dropped so gradually over the course of the year, large numbers of potential home buyers seemed unaware that these new financing opportunities were even available. Once again, the real estate market changed significantly and a lot of people who could benefit from the change weren’t paying attention.

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It has a lot to do with all the attention given interest rates by the investment markets. The business media and financial press fixate on the influence of interest rates on investments. In the months since the Federal Reserve began weaning the economy from government stimulus, the constant question has been: “When will the Fed begin raising interest rates?” And the answer from the “experts” — that rates would begin to rise by late spring — built and reinforced common expectations that must have been discouraging for first-time buyers.

Amount of savings for first-time buyers

The turnaround to low mortgage rates helped reestablish affordability for first-time buyers. Along with the calming of home prices, mortgage rates are improving purchasing power faster than sellers can erase it. Over the course of 2014, rates were down nearly three-quarters of one percent which, according to one analysis, translated into savings of more than 30 percent per month on a mortgage. If your potential monthly mortgage payment at the start of the year would have been $1,000, it’s dropped to $700 — reducing costs $300 a month or $3,600 a year.

Another analysis of the change in fortune for buyers, mortgage rates have boosted purchasing power, close to 8 percent since the first of the year. Today, a homeowner can purchase $8,000 “more home” for every $100,000 approved, as compared to the start of 2014. This extra 8 percent may finally make a purchase affordable for a first-time buyer. Or it could allow a buyer to afford an extra bedroom; an extra bathroom; or a home in a different school district, depending on what’s most important to you.

Meanwhile, as mortgage rates drop, it’s getting easier to get a zero-closing cost mortgage. A zero-closing cost mortgage is a mortgage transaction for which the lender pays all closing costs normally paid by the borrower. In exchange for paying all closing costs, the lender raises the borrower’s mortgage interest rate by a small amount — typically .125 percent for a loan of $250,000 or more. In states in which closing costs are high, zero-closing cost mortgages can be a terrific way to lower your monthly payment without the gamble of  trying to recoup your costs over time.

Even more savings are offered by low- and no-down payment mortgage programs readily available nationwide.

Will low mortgage rates slide even lower in 2015?

If there’s a downward trend in interest mortgage rates, could it be worthwhile to wait for even lower rates?

We can see now that, throughout 2014, mortgage rates were on a steady decline. The 30-year fixed mortgage rate began the year near 4.5 percent, according to Freddie Mac, and ended the year near 3.75 percent — an improvement of 75 basis points.

This was the the second-best extended interest rate drop since 2003, with only 2011 recording better improvement. As mentioned though, unlike 2011, in 2014 mortgage rates weren’t expected to fall. In 2013, rates had run higher to close the year. The Federal Reserve was ending its support for low mortgage rates, and the economy was showing signs of a rebound.

But as Fed support waned, outside economic factors took hold. The dollar strengthened, demand for mortgage-backed bonds grew, political tensions weakened foreign markets and investors turned to safer havens here. All of this contributed to lower mortgage rates, overall.

Until just recently, the common wisdom saw rates heading upward in 2015. Wall Street seemed to think rates had to move higher and some 96 percent of consumers agreed. But, now, there are only a few analysts sticking to the rising rate scenario for 2015. Most of the experts have now dialed back expectations and see little change in rates for the immediate future.

Some analysts believe there are several reasons to expect lower interest rates in 2015. The reasoning is based on the continued economic weakness abroad — particularly in the energy markets. The economies of China, Japan, Russia have been stalled and Europe is experiencing the same. This uncertainty will drive investment dollars toward America and benefit the mortgage-backed securities market. And as prices in that market improve, mortgage rates will drop.

Other reasons you can expect lower mortgage rates

Another reason to expect lower mortgage rates is that the loan-level risk fees charged by the government are expected to be reduced. This will cut the cost of a consumer mortgage by as much as 25 basis points — or a quarter percent of the mortgage interest rate.

Mortgage rates also can be expected to drop as more lenders adopt paperless transactions. E-signatures and imaging tech shorten the time needed to process and close a loan making the transaction less costly for banks. This transition is already evident nationwide, and there’s been a net improvement in loan processing time.

So as long as these trends hold — as far as this analyst is concerned — mortgage rates could close out 2015 near 3 percent with an equally low APR. This would be about 75 basis points — or a three-quarter percent fall from the current rate.

This all assumes no shocks to the system in the form of unforeseen changes in overseas or domestic economies, or unexpected policy reversals by the Fed.

At the close of 2014, lenders were quoting mortgage rates in the mid-3 percent range with equally low APRs. Even zero-closing cost mortgages are inexpensive in today’s mortgage rate environment. Combined with a slowdown in home price inflation, low mortgage rates offer prospective home buyers, including millennials and other first-time buyers, the best chance at home ownership in years.

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