2012 has been a real buyer’s market. Mortgage rates have dropped to record lows (the record was officially set in November, heading into Thanksgiving weekend, at 3.31%), and as we approach the end of the year, with both Christmas and New Years, there could be some changes that potential home buyers may need to consider.
Will the Trend Continue?
Freddie Mac releases a weekly Primary Mortgage Market Survey in which they gather information from lenders all across the country. They gather data from Monday through early Wednesday and compile it into an average rating. The all time low of 3.31% was set in the week of November 21. In a more recent report, the average was not quite that low, but it was coming down again from the previous week.
Last year at this time, the 30-year FRM averaged 3.94%. While we are hovering around the 3.32% area at the moment, the impending holiday reversal may impact the current rates.
What is a Holiday Reversal?
In many different markets, when we see a trend going one way or another, we often see a sudden reversal around the holidays. It has to be a pretty major holiday to qualify – one that can turn into a three-day weekend (Christmas, Thanksgiving, New Years, 4th of July, etc.) – but the reversal is relatively consistent across many different markets. This means it could have an impact on the housing market this year.
It is important to note, however, that the change in direction around the holidays is usually only a temporary one. The reversal won’t usually last more than a few days after the holiday and then it will usually resume its former trajectory.
How Does This Help?
This is information that can help you make some important decisions when you are in the market for a home. If you are paying close attention to the average rate and see it make a sudden turn back up around this Christmas and New Years, you shouldn’t feel compelled to make your final decision and buy a house “before the rates get out of control.” It’s still okay to take some time and consider your options and make sure you get into the right house because, historically speaking, the rates will return to their previous course.
Even the record low interest rates around Thanksgiving were relatively short-lived. History has repeatedly shown that over the Thanksgiving and Black Friday weekend, mortgage rates experience some kind of rebound, which often encourages more than a little optimism about the economy. Stock markets rise, bond markets sink, and interest rates go up. Right now, though, the rates remain relatively low, and this might be the best time to lock in your own rate.
Federal Reserve Activities
The Federal Reserve has played a part in the current situation and its role can’t be ignored when we look at the current low rates. Right now, to stimulate the economy, the reserve has been buying tens of billions of dollars in government securities and mortgage bonds each month. This is a strategy that is designed to help keep long-term interest rates low. They have also officially said that they will continue to do so until the nation’s unemployment rate drops below 6.5%.
While this isn’t expected to happen until 2015, that doesn’t mean you should expect the rates to stay this low forever. Whether it’s a holiday reversal or something else, now might be the time to take advantage of these record low rates.