Fixed mortgage rates reverse course for the first time this year

A Freddie Mac sign stands outside the company's headquarters in McLean, Virginia, U.S., on Tuesday, April 8, 2014. Senator Sherrod Brown, an Ohio Democrat and a member of the Senate Banking Committee, said a bipartisan bill to replace Fannie Mae and Freddie Mac is too complicated and doesn't do enough to address too-big-to-fail concerns or provide assistance for affordable housing. The panel will consider the measure on April 29. Photographer: Andrew Harrer/Bloomberg (Andrew Harrer/Bloomberg News)

Fixed mortgage rates moved lower for first time in 2018.

According to the latest data released Thursday by Freddie Mac, the 30-year fixed-rate average slipped to 4.44 percent with an average 0.5 point. (Points are fees paid to a lender equal to 1 percent of the loan amount.) It was 4.46 percent a week ago and 4.3 percent a year ago.

The 15-year fixed-rate average fell to 3.9 percent with an average 0.5 point. It was 3.94 percent a week ago and 3.5 percent a year ago. The five-year adjustable rate average rose to 3.67 percent with an average 0.4 point. It was 3.63 percent a week ago and 3.28 percent a year ago.

[ Financial planning can help reduce anxiety of buying a home ]

“After holding steady for much of the week — even through Friday’s exceptionally strong jobs report — rates fell for the first time this year after inflation data reported Tuesday were weaker than anticipated, and news of the firing of Secretary of State Rex Tillerson prompted some financial market flight to safety,” said Aaron Terrazas, senior economist at Zillow. “Beyond the continued risk of geopolitical developments, the Fed is expected to raise short-term interest rates at next Wednesday’s [Federal Open Market Committee] meeting. The press conference following the meeting will be Chairman [Jerome] Powell’s first since taking over in mid-February and markets will study the FOMC’s quarterly forecasts for signals about the committee’s unspoken monetary policy leanings.”

Bankrate.com, which puts out a weekly mortgage rate trend index, found that nearly two-thirds of the experts it surveyed say rates will remain relatively stable in the coming week. Shashank Shekhar, the chief executive of Arcus Lending, is one who expects rates to hold steady.

“Rates went up too quickly at the beginning of the year and are now simply taking a pause,” Shekhar said. “Mortgage-backed securities, the trading of which directly influences the rate, seems to be agnostic even to big personnel changes in the White House and Britain’s action against Russia. It would take something even more dramatic and unexpected for the mortgage rates to move by a big margin either way, up or down.”

[ Know your mortgage options when searching for a new home ]

Meanwhile, mortgage applications were flat again last week, according to the latest data from the Mortgage Bankers Association. The market composite index — a measure of total loan application volume — increased 0.9 percent from a week earlier. The refinance index fell 2 percent, while the purchase index rose 3 percent.

The refinance share of mortgage activity accounted for 40.1 percent of all applications, its lowest level since September 2008.

“Although the purchase market continues to be constrained by a lack of supply, applications for home purchase loans increased 3 percent last week to the highest level in over a month, as demographic and economic conditions remain favorable for housing demand,” said Joel Kan, an MBA economist. “Refinance activity remains weak as rates have increased in essentially every week of 2018 thus far, reducing the benefit of a refinance for those borrowers currently in the market.”

Robert Bobby Darvish Platinum Lending Solutions Orange County California

Mortgage refinance applications surge 9 percent as rates fall back

• Total mortgage applications rose 4.7 percent last week.
• The Mortgage Bankers Association's report showed a 9 percent weekly jump in applications to refinance.

Luke Sharrett | Bloomberg | Getty Images

Houses stand near the former Bethlehem Steel plant, now occupied by Gautier Steel Ltd., in downtown Johnstown, Pennsylvania.

Interest rates on home loans are now significantly lower than a year ago, and that may be bringing more homeowners back to their lenders to refinance.
Total mortgage applications rose 4.7 percent last week from the previous week.
The increase in the Mortgage Bankers Association's seasonally adjusted report was largely due to a 9 percent weekly jump in applications to refinance. Lenders suddenly have a strong sales pitch, now that rates are significantly lower than they were a year ago.
Rates jumped dramatically following the presidential election and remained higher for much of the past year, until now. Refinances are now down just 10 percent from a year ago because volume dropped by half for much of last year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $424,100 or less decreased to 4.19 percent from 4.20 percent, with points increasing to 0.40 from 0.34, including the origination fee, for 80 percent loan-to-value ratio loans. The rate stood at 4.27 percent one year ago.

"The refinance share is at its highest level since September," said Mike Fratantoni, chief economist at the MBA. "Purchase volume continues to be supported by a strengthening job market."

Mortgage applications to purchase a home increased 2 percent for the week and are now 8 percent higher than a year ago. While buyer demand remains strong, the supply of affordable homes for sale is not, and that is holding back a more robust market for purchase loans.

Mortgage rates have not been moving much for the past two months, but they are now becoming slightly more volatile. The Republican tax plan, nearing a final form and vote in Congress, could cause a reaction in rates. Industry watchers expect rates to move higher in 2018, although that was the expectation in 2017, and they are now lower.

By Robert Bobby Darvish Platinum Lending Solutions Orange County

Homebuyers rush to riskier mortgages as home prices heat up

• The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second.
• Mortgage rates are still very low, historically speaking, but they have been inching up.
• Buyers this year are struggling with affordability and opting for a lower-rate product.

Carlo Allegri | Reuters

An aerial view of a retirement community in Central Florida

Home prices are heating up yet again, and that is sending more potential buyers looking for ways to afford a monthly mortgage payment.
The number of adjustable-rate mortgage originations jumped just over 40 percent from the first quarter of this year to the second, according to analysis by Inside Mortgage Finance. ARMs offer lower interest rates than fixed-rate loans, and today's ARMs usually have a fixed period of at least five years. That means the rate can change after five years. Still ARMs are considered riskier than the classic 30-year fixed mortgage.
The average contract interest rate on 30-year-fixed mortgages with conforming balances was 4.11 percent last week, according to the Mortgage Bankers Association. Compare that with the rate on a five-year ARM, which was 3.38 percent. The rate on an adjustable-rate loan, by definition, will change after the fixed period, moving higher or lower, depending on the broader market rate.
ARM demand usually rises from the first quarter to the second quarter, because spring is the busiest season for homebuying, and it's when families dominate the market, searching for bigger, higher-priced homes. Still, the jump in ARMs in the spring of 2016 was 15 percent compared with this year's 40 percent jump. This makes the case that buyers this year are struggling with affordability and opting for a lower-rate product.
While mortgage rates remain very low, historically speaking, they have been inching up. The vast majority of homebuyers favored the safety of the 30-year-fixed rate mortgage since the housing crash, but weakening affordability is now changing that.
Home prices have been rising steadily for the past three years, and while it looked like the gains were flattening recently, they appear to be heating up again. Prices nationally jumped 6.9 percent in August compared with August of 2016, the biggest gain in three years. The annual gain in July was 6.7 percent, according to CoreLogic.
"One thing that's helped to fuel demand, and certainly home price growth, as much as the lean inventory of for-sale homes is that mortgage rates have really cooperated," said Frank Nothaft, chief economist at CoreLogic.
Home prices have been rising far faster than inflation, but Nothaft predicts the gains will actually ease next year, if, as he expects, mortgage rates rise. That will be the tipping point, he said, although others argue that tight supply of homes for sale, especially on the low end, will keep prices lofty despite higher mortgage rates.
Already, close to half of the nation's top 50 housing markets are overvalued, in relation to income and employment growth.
"Prices are being driven up by very tight market conditions," noted Matthew Pointon, property economist at Capital Economics. "On a per capita basis, the number of existing homes for sale is at a record low, and buyers are therefore having to up their offers to secure a home."
Pointon said home prices should actually be rising by more than 10 percent, given the tight supply, but tight mortgage lending standards are restricting that growth.
"Cautious appraisals are preventing desperate buyers from bidding too much for a home, as are strict debt-to-income ratios," he said.
While ARM loans are often blamed for the epic housing crash in the late 2000s, the current ARMs are nothing like those of the past. Products like negative amortization loans, which offered very low rates up front but then tacked that initial savings amount onto the loan itself, no longer exist.
Loans must now be fully documented and underwritten to the full length of the loan in order to make sure borrowers can pay even if the rate goes up. Lenders must also make it very clear to borrowers that their rate is only fixed for a certain term, and that it will likely go up after that term, given the current trajectory of rates overall. That, again, was not the case in the past.

Fed Raises Key Interest Rate For 4th Time Since 2015

Federal Reserve Chair Janet Yellen speaks to reporters in Washington, D.C., on Wednesday after the Fed announced it would increase interest rates by a quarter-point.

Susan Walsh/AP 

 

Updated at 3:55 p.m. ET.
Federal Reserve policymakers have raised their target for the benchmark federal funds interest rate by a quarter-point, to a range of 1 percent to 1.25 percent.
Despite the increase — the fourth since December 2015 — interest rates remain near historic lows, but the move will mean higher borrowing costs for consumers. The Fed previously raised rates in March, and on Wednesday, it signaled plans for one more rate increase this year.

In a statement Wednesday, the policymakers said that "the labor market has continued to strengthen and that economic activity has been rising moderately so far this year."
The economy grew at a rate of 1.2 percent in the first quarter of this year, about half as fast as it did in the final three months of 2016. Unemployment dipped to 4.3 percent in May, a 16-year low.
"Job gains have moderated but have been solid, on average, since the beginning of the year, and the unemployment rate has declined," the Fed statement said. "Household spending has picked up in recent months, and business fixed investment has continued to expand."

Greg McBride, an analyst with consumer financial site Bankrate.com, tells NPR's Yuki Noguchi that, taken together, the Fed's moves have caused home equity and car loan rates to increase about 1 percentage point over the last two years.
"The combination of rising debt burdens and rising interest rates is starting to strain some households, and we're seeing delinquencies pick up from recent lows," McBride says.
In the wake of the financial crisis, the central bank added Treasury securities and mortgage-backed securities to its balance sheet. Now it's making plans to reduce those holdings, which total more than $4 trillion.
The Fed said it "currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated."
As Reuters reports:

"The central bank said it would gradually ramp up the pace of its balance sheet reduction and anticipates the plan would feature halting reinvestments of ever-larger amounts of maturing securities.
"The Fed said the initial cap for Treasuries would be set at $6 billion per month initially and increase by $6 billion increments every three months over a 12-month period until it reached $30 billion per month in reductions to its holdings.
"For agency debt and mortgage-backed securities, the cap will be $4 billion per month initially, increasing by $4 billion at quarterly intervals over a year until it reached $20 billion per month."

Robert Bobby Darvish Platinum Lending Solutions Newport Beach CA

Why We Could Get Negative Interest Rates Even Though The Fed Is Hiking

Federal Reserve Board Chairman Janet Yellen speaks during a briefing on March 15, 2017 in Washington, DC. / AFP PHOTO / Brendan Smialowski/Getty Images

At its March meeting, the Federal Reserve raised interest rates by 0.25%. In doing so, it hiked rates for only the third time since 2006. However, in a strange turn of events, the Fed’s move was perceived as a dovish one by the markets.
That’s because even with inflation at its highest level since 2012, the Fed said monetary policy will remain accommodative “for some time.” As has been the case in the past, the Fed is willing to let inflation consolidate above its 2% target before embarking on a more aggressive tightening path.
This willingness to let inflation “run hot” means even as nominal rates rise, real rates—that is, the nominal interest rate minus inflation—are headed into negative territory.
So what are the implications of negative real rates?
Negative Real Rates Drive Gold Higher
The consumer price index (CPI), the most widely used measure of inflation, averaged 2.67% for the first two months of the year. Even if inflation averaged only 2% for all of 2017—the Fed’s target—it would be a big problem for investors and savers alike.
Today, a one-year bank CD pays about 1.4%. Therefore, anyone who keeps their money in a bank is watching their purchasing power erode.
Of course, there are other options. You can put your money in U.S. Treasuries or dividend-paying stocks—both popular sources of fixed income.
However, with both the 10-year Treasury yield and the average dividend yield for a company on the S&P 500 hovering around 2.35%, that doesn’t leave much in the way of real gains if inflation is running at 2% per annum.
If inflation rises or bond yields fall, real interest rates will be pushed into the red… and that’s very bullish for gold.
Gold is known as the yellow metal with no yield, but simple math tells us no yield is better than a negative one. Because of this, gold has done well when real rates are in negative territory. In fact, real US interest rates are a major determinate of which direction the price of gold moves in.
A study from the National Bureau of Economic Research found that from 1997–2012, the correlation between real U.S. interest rates and the gold price was -0.82.
This means as real rates rise, the price of gold falls and vice versa. A -1.0 reading would be a perfect negative correlation, so this is a tight relationship.

The Fed’s hesitation to raise rates faster is contributing to another trend that is also bullish for gold.
A Falling Dollar Equals Higher Gold Prices
In the six weeks following the US election, the dollar skyrocketed 5.6%—a huge move for a currency.
However, since the beginning of the year, the greenback has given back most of its post-election gains. This is in part due to the Fed’s “dovishness” on interest rates.
The strong negative correlation between gold and the U.S. dollar is a major reason the yellow metal is up over 9% year to date.

Market Realist

In the March edition of Bank of America Merrill Lynch’s Global Fund Manager Survey, respondents thought the dollar was at its most overvalued level since 2006. As the chart shows, the survey has a good track record of determining when the dollar is overvalued.

Bank of America Merrill Lynch

Tying it all together, what do these trends mean for gold?
Gold Should Go Higher from Here
With arguably the two biggest drivers of the gold price trending in the yellow metal’s favor, gold is likely to go higher. Although the dollar could rise if Washington implements some structural reform, real rates aren’t headed higher anytime soon based on the Fed’s actions.
Bank of America Merrill Lynch said these two trends were part of the reason why it upgraded its forecast for gold to $1,400 per oz. by year-end. As the chart below shows, the market turned bullish on gold following the Fed’s December rate hike.
In closing, after nine years of doing its utmost to generate inflation, the Fed has finally succeeded. If past is prologue, as inflation rises over the coming months, gold will do very well.
If you’re considering getting some gold before it goes up, do your homework first.

Robert Bobby Darvish Platinum Lending Solutions

Mortgage Rates Were Up on Friday as the Jobs Report Showed the Signs of a "Trump Effect"

Mortgage rates were slightly higher on Friday. Meanwhile, the U.S. economy added 227,000 jobs in the month of January, beating expectations and providing evidence that the "Trump effect" on animal spirits has had an early economic impact.

The average 30-year mortgage rate rose four basis points, to 4.08%, on Friday, which equates to a $482.04 monthly payment per $100,000 borrowed (one basis point equals one-hundredth of a percentage point). A month ago, the equivalent payment was lower by $1.74.
The average 15-year mortgage rate rose one basis point, to 3.23%, equating to a $701.70 monthly payment per $100,000 borrowed. A month ago, the equivalent payment was the same.

Rate (national average)	Today	1 Month Ago
30-year fixed jumbo	4.48%	4.57%
30-year fixed	4.08%	4.05%
15-year fixed	3.23%	3.23%
30-year fixed refi	4.11%	4.09%
15-year fixed refi	3.25%	3.25%
5/1 ARM	3.26%	3.39%
5/1 ARM refi	3.33%	3.60%

5/1 ARM: ADJUSTABLE-RATE MORTGAGE WITH AN INITIAL FIXED FIVE-YEAR INTEREST RATE. DATA SOURCE: BLOOMBERG. RATES MAY INCLUDE POINTS.

Image source: Getty Images.

Mortgage rates are closely linked to the yield on the 10-year Treasury bond. That yield, in turn, reflects the bond market's expectations for future short-term interest rates over the bond's maturity. And short-term interest rates, well, they reflect the Fed's assessment of the economy and its prospects.

This brings us to the most highly anticipated macroeconomic data release: the Labor Department's monthly Employment Situation Report. This morning's report was no different, as economists and investors try to find their bearings during the first 100 days of the iconoclastic Trump administration.
The January report was broadly positive with 227,000 workers added to payrolls, surpassing the consensus forecast of 175,000. As the following graph shows, the figure for January (blue line) is above the trailing 12-month average of 195,000 (red line):

Image source: Federal Reserve Bank of St. Louis.

The unemployment rate ticked up by a tenth of a percentage point, to 4.8%, but the trend reflects an economy that's creating enough jobs to maintain the unemployment rate (green line) at 5% or below. (Note that the participation rate has remained pretty stable over this period.)
While their ardor appears to have cooled somewhat since the actual handover in power, stock and bond market investors took a very buoyant view of economic prospects under the new administration. The narrative was that a businessman in the highest office would act decisively to boost American businesses, and that was plainly enough to raise "animal spirits." Today's data suggests the "Trump effect" probably had a genuine economic impact, but investors need to "watch the downside," too.

By: Robert Bobby Darvish of Platinum Lending Solutions of Orange County

Mortgage Rates Inch Up; Solid Jobs Report Is Consistent With a December Rate Rise

Mortgage rates inched ahead on Friday; meanwhile, 161,000 jobs added in October and advancing hourly wages are consistent with a December rate rise from the Fed.

Nov 4, 2016 at 2:19PM

IMAGE SOURCE: PIXABAY.

Mortgage rates inched up on Friday: The average 30-year mortgage rate is 3.49%, which equates to a $448.49 monthly payment per $100,000 borrowed. A month ago, the equivalent payment would have been lower by $7.22.
If you opt for a shorter term, the average 15-year mortgage rate is 2.74%, which equates to a $678.15 monthly payment per $100,000 borrowed. A month ago, the equivalent payment would have been lower by $5.22.

Rate (national average)	Today	1 Month Ago
30-year fixed jumbo	4.13%	4.35%
30-year fixed	3.49%	3.36%
15-year fixed	2.74%	2.63%
30-year fixed refi	3.52%	3.41%
15-year fixed refi	2.77%	2.65%
5/1 ARM	3.04%	2.92%
5/1 ARM refi	3.17%	3.02%

5/1 ARM = ADJUSTABLE-RATE MORTGAGE WITH AN INITIAL FIXED FIVE-YEAR INTEREST RATE. DATA SOURCE: BLOOMBERG.

Strong October jobs report sets up a December rate hike, but expect rate rises to be gradual

The employment situation report for the month of October was well-received on Friday. The addition of 161,000 jobs to nonfarm payrolls was within Bloomberg's range of estimates of 155,000 to 200,000. That figure was bolstered with upward revisions for August and September totaling 44,000. The unemployment rate fell to 4.9% in October, from 5%, in line with the consensus estimate. Most noteworthy, perhaps, were average hourly earnings, which rose by 0.4%, above the 0.2% to 0.3% range of estimates.
Despite these results, the market-implied probability of a December interest-rate rise fell from 78% to 74% on Friday, according to data from Bloomberg. The probabilities are derived from prices in the federal funds futures market.
Speaking at the 2016 Realtors Conference and Expo this morning, Federal Reserve Bank of Atlanta president Dennis Lockhart said of this morning's report, "the top-line numbers look solid." He went on to say:

I anticipate a very gradually rising interest rate environment over the next two years. ... And when the rate environment does reach steady state, mortgage rates should still be low and affordable by historical standards.

Mr. Lockhart is not a member of the Fed's interest rate-setting committee.
The interest-rate cycle is turning, but the turn will likely be very gradual, which is good news for prospective homebuyers.

The $15,834 Social Security bonus you could be missing
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $15,834 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Mortgage Rates: Good News -- For Buyers With Good Credit

Mortgage rates dipped this week, averaging 3.43% for a 30-year, fixed-rate loan, down from 3.45%. At this time last year, rates averaged 3.93%, according to Freddie Mac.

Rates have held below 4% for 33 weeks, the second-longest run of cheap borrowing the U.S. has ever had. The record was set from March 2012 to June 2013, when the cost of a 30-year loan held below 4% for 65 weeks.

That’s great news — for people who can get a loan. The reality is that many borrowers can’t qualify for a home loan at all, much less get approved at rock-bottom rates, which are reserved for buyers with pristine credit and big downpayments.

Even though the credit collapse is well behind us, there’s no sign lenders are loosening up, either. Last month, the average credit score on a new mortgage was 727, the highest since June 2015, according to Ellie Mae. By comparison, the average consumer has a credit score of 699, according to Experian, which issues FICO scores.

An April survey by Experian found that 45% of homebuyers were delaying a purchase while they improved their credit profile. Thirty-four percent feared their credit score would prevent them from buying.

In short, too many credit-worthy consumers are being turned away from homeownership, which remains one of the best tools for building wealth and financial security. Data from ComplianceTech shows that black Americans, for example, areless likely than whites to get approved for conventional, low-cost mortgages.

MOST POPU

KPMGVoice: KPMGVoice: A Big Tax Break For Small Businesses

Source: Freddie Mac

On the plus side, this low-rate environment probably will stick around for a while, even though job growth and strong consumer spending has traders betting the Federal Reserve will raise its own short-term interest rates this year, possibly in December.

The Fed doesn’t control the cost of home loans, but it can affect them. In 2013, rates shot up after Fed Chairman Ben Bernanke hinted that the Fed would buy less mortgage debt. His remarks sent financial markets into a “taper tantrum” that pushed interest rates up and threw housing off course.

That’s not likely to happen this time. The Fed is cautious and global economic woes have made investors cautious, too. That has the effect of keeping mortgages cheap, which is welcome news forhomebuyers and sellers.

bobby darvish, Robert Bobby Darvish, Platinum Lending Solutions, Orange County

What Two Years of Negative Interest Rates in Europe Tell Us

Credit Angus Greig

Hoping to kick-start European economies, the European Central Bank took the extraordinary step two years ago of lowering one of its key interest rates to below zero. The idea was to discourage banks from stashing their money in the central bank by charging them a modest rate for doing so. Since the banks would lose money rather than earn interest on their deposits, it was hoped they would be prompted instead to make more loans at lower rates to businesses and consumers.

It hasn’t worked very well. As many experts predicted at the time, the policy has had only a modest impact on growth. It is also increasingly clear that pushing rates down further wouldn’t help much and could, in fact, increase risks to the global financial system.

The European Central Bank, or E.C.B., sets monetary policy for the 19 countries that use the euro. In June 2014 it became the world’s first major central bank to adopt so-called negative interest rates. Monetary officials in Denmark, Switzerland and Sweden adopted similar policies in the following months; the Bank of Japan joined them in January.

Negative rates have helped to push down the cost of borrowing, but that has not provided a big lift to the euro area. The E.C.B. expects growth of 1.6 percent this year, about the same as last year. This is not surprising, because lower rates don’t address the real economic problems of many European countries: weak consumer demand and weak business investment. Companies are less likely to borrow for new investments when demand for their goods and services is not increasing — even if the cost of borrowing is cheaper than ever.

Of course, growth might have been even lower without negative interest rates. But there are limits to the benefits of such unconventional monetary policies. It would be far better if European governments used fiscal policy to increase demand by investing in roads, bridges, railroads, ports and other infrastructure. Government spending would create jobs and stimulate economic activity, and would not cost much. Bond investors are willing to lend money to the German government for 30 years at a rate of just 0.38 percent; in France, the rate is only 0.878 percent.

Meanwhile, continuing to rely on negative rates could be dangerous. The worry among many experts is that banks, institutional investors and even individuals desperate for higher returns might be seduced into taking foolish risks. They might also be tempted to make big investments overseas, driving up the price of stocks and bonds in the United States and Asia and creating bubbles that expose the global financial system and economy to another crisis. Some analysts are already worried about high prices for real estate, stocks and other assets.

In addition, persistently negative rates could well force European banks to raise fees on checking and savings accounts to recoup the rising cost of depositing reserves at the central bank. This, in turn, would encourage individuals and businesses to take some of their money out of banks and stash it in safes, or under mattresses. And that would not be good for the stability of European banks.

Mario Draghi, the president of the E.C.B., clearly understands the risks of negative interests rates, which is probably why he did not lower rates further last month. But there is only so much he can do. The political leaders of Europe need to help him revive Europe’s economy.

Mortgage Rates: Most Millennials Have Never Seen A 5 Percent Loan, But They Fret About Them Anyway

Mortgage rates rose for the second week, averaging 3.45 percent for a 30-year, fixed-rate loan, up from 3.42 percent the week before. A year ago, rates averaged 4.04 percent, according to Freddie Mac’s weekly survey.

Despite the uptick, rates have held below 4 percent since December, tying a 29-week run of cheap borrowing we had from November 2014 to June 2015.

During that sprint, the cost of a 30-year loan averaged 3.77 percent. This time, it’s held to 3.64 percent.

Source: Freddie Mac

Home loans are cheap by any standard. That’s good news particularly for young and first-time buyers, who tend to be more sensitive to cost. Even though they’ve never lived in a high-rate environment, millennial homebuyers still fret about mortgages . Peak millennials — the biggest cohort, born in 1990 — turned 25 last year. They’ve barely witnessed 4 percent rates.

In a Redfin survey, 47 percent of all buyers said they’d look for a less expensive house if rates rose by a point or more. Among respondents 34 and younger, the share was more than 50 percent.  Five percent of millennials said they’d give up looking for a house altogether if rates jumped.

Source: Freddie Mac

Recommended by Forbes

Rates are lower now than they were in May, when the survey was taken. That’s one reason June was one of the most competitive months on record for home sales, according to Redfin data.

Mortgage rates will tick up and down week to week, but they’ll stay low for the foreseeable future.

“We don’t expect any significant movement in mortgage rates in the near term,” Freddie Mac chief economist Sean Becketti said. “This summer remains an auspicious time to buy a home or to refinance an existing mortgage.”

Bobby Darvish of Platinum Lending Solutions

Why the Fed Can't and Shouldn't Raise Interest Rates

The author is the professor of practice and senior director of the Oregon Economic Forum at the University of Oregon and the author of Tim Duy's Fed Watch.

The Federal Reserve eschews balance sheet policy – changes in the amount or composition of assets held by the central bank – in the early stages of its plans to normalize the extraordinary monetary policy it instituted in the wake of the financial crisis. Instead, the Fed’s normalization plans currently focuses on raising the federal funds rate. But the central bank may need to use both rate policy and balance sheet policy simultaneously to reach the objectives of its dual mandate – or price stability with maximum sustainable employment – while sustaining a financial environment consistent with those objectives.

The flattening of the U.S. yield curve as investors see little chance of rates rising in the longer term should serve as a red flag that their focus on short-term interest rates may be doomed to failure.

Source: Bloomberg

One of the defining features of this tightening cycle is the same as the cycles that came before – the yield curve is flattening, and very quickly. The spread between 10-year and two-year U.S. Treasuries has collapsed to 88 basis points at a time when the federal funds target rate is 25-50bps. This suggests that the Fed actually has very little room to raise short-term rates. If additional rates hikes compress the yield curve further, the capacity for maturity transformation – effectively the process of borrowing on shorter time frames to lend on longer time frames – will soon be compromised.

Federal Reserve Governor Daniel Tarullo sees the threat. Speaking with the Wall Street Journal, he said:

Tarullo said he didn't think that the worry that low interest rates may fuel asset bubbles was an “immediate concern.”

The Fed governor, who is the quarterback of the Fed's efforts to regulate banks, questioned whether raising rates would ease financial stability concerns in an environment where the market was pessimistic about the economic outlook.

“If markets do regard economic prospects as only modest or moderate going forward, then raising short-term rates is almost surely going to flatten the yield curve, which generally speaking is not good for financial intermediation, and in some sense could exacerbate financial stability concerns,” Tarullo said.

When rates are low, regulators should pay more attention to financial stability issues "but it doesn't translate into 'therefore raise rates and all will be well,'" he added.

Some of Tarullo's colleagues at the Fed are pushing for rate hikes sooner rather than later on the basis of two economic narratives. The first essentially collapses to a Phillips curve story. In other words, as slack in the labor market decreases, inflationary pressures rise. To stem those pressures, the Fed needs to raise rates early, especially if they want to achieve a slow pace of subsequent rate hikes.

The problem with this story is that the Phillips curve is flat as a pancake, hence the calls for early rate hikes to quell inflationary pressures fall on some deaf ears around Constitution Avenue. This is especially the case after a long period of below target inflation and, perhaps more worrisome, evidence of declining inflation expectations. It is simply hard to build much support for the "we need to raise rates because of inflation" case in this environment.

In the absence of a strong inflation argument to justify rate hikes, some Fed policymakers are leaning more heavily on a second narrative, the financial stability angle — the fear that low rates foster asset bubbles or, perhaps worse, dangerously high levels of leverage within the financial sector.

For instance, San Francisco Federal Reserve President John Williams recently said:

"The risk I think we face in waiting too long, or waiting maybe as long as some of these market expectations are, is that the economy is already pretty strong and if we wait too long in further removal of accommodation I do think imbalances will form more generally. It could show up as more inflation pressures down the road, we're not seeing those yet, but I think that you do see some of this in terms of real-estate markets and other asset markets which are being priced to perfection based on an outlook of very low interest rates. You are seeing extremely high asset valuations in real estate, commercial real estate, the stock market is very strong relative to fundamentals. That is a natural result from low interest rates, that's one of the ways monetary policy affects the economy. But if asset prices, real estate prices, continue to go further and further away from longer-term fundamentals I think that creates risk for the economy, I think it creates risks eventually for the financial system."

Tarullo will likely push back against this line of thought. Raising interest rates alone may not alleviate financial stability concerns. In fact, they may aggravate those concerns if the yield curve continues to flatten. In contrast, consider the implications of a potential policy path charted in June of 2015 by New York Federal Reserve President William Dudley:

"An important aspect of current financial market conditions is the very low bond term premia around the globe.  If a small rise in short-term rates were to lead to an abrupt increase in term premia and bond yields, resulting in a significant tightening in financial market conditions, then the Federal Reserve would likely move more slowly — all else equal. As an example, consider the experience of the 1994-95 tightening cycle. Bond yields rose sharply and the Federal Reserve tightened less than what was ultimately priced in by market participants.  Conversely, if term premia and bond yields were to remain low and the economic outlook suggested that financial conditions needed to be tighter and a rise in short-term rates did not generate this outcome, then the FOMC would likely need to raise short-term rates further than anticipated.  The 2004-2007 tightening cycle might be a good example of this.  The FOMC ultimately pushed the federal funds rate up to a peak of 5.25 percent, in part, because the earlier rise in short-term rates was generally ineffective in tightening financial market conditions sufficiently over this period."

Dudley, at least last year, believed that during the 2004-2007 cycle the Fed needed to push harder on the short end of the curve because the long end wasn't responding. In the process, the Fed inverted the yield curve, which only exacerbated the financial crisis along the lines of Tarullo’s thinking. Policymakers need to think carefully before they create conditions that interfere with maturity transformation and hence financial intermediation. Following Dudley's 2015 advice now by raising short rates to quell nascent financial stability problems would be a complete disaster. He probably realizes this.

But note too that Dudley looks disapprovingly on the 1994-1995 cycle. For policymakers at the Fed, that cycle has left an indelible mark on their psyche. The just can't shake it. And 2013's "taper tantrum," or the steepening of the yield curve in the wake of former Federal Reserve Chair Ben Bernanke's hints that quantitative easing was ending, revived their fear of a 1994 repeat. The Fed doesn’t like a steep yield curve, but they won’t like a flat one either. 

So what's a central bank to do? They try to exit this quandary through forward guidance — attempting to control the long-end of the curve by signaling their intentions for the short-end. This does not appear to be working; the interaction of policy and guidance are flattening the curve further but leaving short-term rates near zero. As it stands, it is all too easy to see the economy gaining sufficient momentum to prompt the Fed to tighten further, but that tightening would quickly invert the yield curve and send the credit creation process on a recessionary trajectory.

Tarullo provided another path for the Fed to follow in a 2014 speech:

"Finally, it may also be worth considering some refinements to our monetary policy tools. Central banks must always be cognizant of important changes that may result in different responses of households, firms, and financial markets to monetary policy actions. There is little doubt that the conduct of monetary policy has become a good deal more complicated in recent years. Some of these complications may diminish as economic and financial conditions normalize, but others may be more persistent. Central banks, in turn, may want to build on some recent experience, adapted for more normal times, in addressing the desire to contain systemic risk without removing monetary policy accommodation to advance one or both dual mandate goals. One example would be altering the composition of a central bank's balance sheet so as to add a second policy instrument to changes in the targeted interest rate. The central bank might under some conditions want to use a combination of the two instruments to respond to concurrent concerns about macroeconomic sluggishness and excessive maturity transformation by lowering the target (short-term) interest rate and simultaneously flattening the yield curve through swapping shorter duration assets for longer-term ones."

In this example, he suggests responding to financial market excess in a weak economy by flattening the curve via balance sheet tools while lowering rates. The lesson, however, is more general. The Fed needs to think of policy in terms of using two tools — rates and balance sheet — simultaneously. Forward guidance alone might not be sufficient to allow the rate tool to mimic the impact of both jointly. In the current environment, should the Fed want to increase rates to tighten policy but at the same time be concerned about excessive flattening of the yield curve, they would need to sell long-dated Treasuries from their portfolio to normalize policy. Depending on conditions, this may be in concert with rate hikes at the short-end.

Start your day with what’s moving markets.

Get our markets daily newsletter.

In effect, the Fed should consider the need for two targets, both the level of rates and the slope of the yield curve, as essential for meeting their policy goals. For now, the Fed appears committed to just the interest rate tool. And in some ways, that is no surprise. Short-term rates are a comfortable tool for the Fed, whereas playing with the yield curve via the balance sheet is seen as fraught with danger. But with the yield curve flattening as the economy approaches full employment, they may find themselves unable to maintain the appropriate level of financial accommodation via rate policy alone.

Bottom Line: The Fed needs to remember that how they got into this policy stance may offer a lesson for how to get out. Policy makers cut rates to zero and then instituted quantitative easing. Now they should consider selling assets before raising rates. Or, at a minimum, utilizing a mixed strategy of rate hikes and asset sales. The objective of meeting the Fed's mandate in the context of maintaining financial stability may be unattainable using the interest rate tool and associated forward guidance alone. Unfortunately, the Fed does not appear to be debating the policy mix — at least not in public. They remain focused on interest rates, delaying balance sheet policy to a later date. On the current trajectory, however, that later date may never come.

For all your mortgage needs you can reach Bobby Darvish of Platinum Lending Solutions.