Unexpected dip in mortgage rates a gift to buyers, sellers

| Friday, Feb. 26, 2016, 10:27 p.m.

Mortgage rates have taken a surprising dip to start 2016 and could lead to a busy spring in the housing market as buyers look to take advantage of cheap borrowing costs.

Rates on a 30-year fixed-rate mortgage were at near-record lows of 3.62 percent Thursday, down from 4.01 percent at the end of December, according to the weekly survey by mortgage lender Freddie Mac.

The decline has surprised many industry experts, who predicted that mortgage costs would go up after the Federal Reserve raised its benchmark short-term borrowing rate in December.

But the turbulent start to financial markets in 2016 has helped keep rates down and given home buyers something to think about heading into spring.

Real estate broker Joe Yost says questions about the direction of mortgage rates are a regular topic of conversation with buyers.

“It absolutely comes up every single time,” said Yost, of Berkshire Hathaway The Preferred Realty in Pittsburgh. “It was a surprise that rates are where they are currently. It's good for business.”

Lower rates allow buyers to afford higher-priced homes and could persuade renters to move up their plans for a purchase.

Jon Accamando had planned to rent for a while after he relocated his family to Pittsburgh from California for work. But mortgage costs have only gotten cheaper since he started looking in January, which convinced him to buy now.

“It definitely has me leaning toward buying because of the low interest rates that are going on right now,” said Accamando, 42.

Many economists predicted that mortgage rates would steadily increase this year since the Fed bumped its target fed funds rate by a quarter of a percentage point in December, the first increase since 2006.

But few expected that stock markets would have such a rough start to the year. The decline in stocks prompted nervous investors to seek safety in government bonds, which drove up prices and kept yields low. Mortgage rates tend to track yields on 10-year Treasury bonds.

Rates are likely to stay low for some time, said Nela Richardson, chief economist for Seattle-based real estate broker Redfin. Global concerns of a slowdown in China and low commodity prices continue to spook financial markets and may persuade the Fed to hold off on more rate hikes

“We expect they could be a bit volatile, but bump along the 3.6 percent to 3.7 percent range for a while,” she said.

Nick Cherish, 31, said he is hoping to take advantage of low rates while they last. The South Side resident has a lot of big financial decisions ahead — he's getting married in April. Saving a few extra bucks on a monthly mortgage payment would be nice, he said, but it won't cause him to rush a decision.

“It is a nice perk,” he said of the lower rates.

More buyers are likely to start shopping around, Richardson said, but they might not drive up home sales. Just because there are people looking doesn't mean they'll be able to find the homes they want. Inventories are low, and buyers could find themselves in bidding wars if new listings don't keep up with demand.

“Inventory is the biggest headwind in the housing market,” Richardson said. “It is choking off the demand that we see.”

Housing inventory at the end of January was 2.2 percent lower than a year ago, the National Association of Realtors said this week. New listings in Western Pennsylvania have increased 8.2 percent from a year ago, although inventories are tight with just five months of supply on the market. Six months' inventory is considered a good balance, according to real estate data firm West Penn Multi-List Inc.

Attracting borrowers this season won't be a problem, but bringing new homes on the market may be a concern, said Todd Householder, senior vice president of secondary marketing at Huntington National Bank.

“You're going to have more activity from the demand side,” Householder said. “The question really becomes, are we going to see more houses come on the market on the sale side?”

Derek Baker said his home search took several months longer than expected because of the lack of appealing options. He had hoped to purchase a home by December, but after touring more than two dozen homes, he found only five worth considering. He and his wife, Ashley, were outbid on their first two offers before settling on a home in Washington.

The longer wait worked out in their favor. Rates are now a half-percentage point lower than when they started looking in the fall. They now have a home under contract and have locked in a rate at 3.75 percent.

“I figured I'd get screwed with the interest rates,” he said. “It's kind of a relief.”

Accamando hopes rates stay down, but said if they tick up over 4 percent, it won't affect his ability to afford a decent home. He has been touring homes in Cranberry, where he is confident that he'll find something within his price range, especially after having sold his four-bedroom town house in Redondo Beach, Calif., for $775,000. It sold in five days.

“I think, with the current mortgage rate situation, the market right now seems to be strong for sellers and buyers alike,” he said.

Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or cfleisher@tribweb.com.

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