Freddie Mac recently released its U.S. Economic and Housing Market Outlook for February showing that despite the Federal Reserve’s taper activity, long-term rates have eased over the past month, providing a chance for some borrowers who are holding older mortgages an opportunity to refinance.
“It appears mortgage rates may have given the market a reprieve for a month or so and provided some borrowers another chance at refinancing, especially those folks that may be holding older mortgages,” says Frank Nothaft, Freddie Mac vice president and chief economist. “However, if rates continue their upward trend, it will be difficult for many families to purchase a home without seeing some income growth. Rising home prices and interest rates along with little to no income growth has resulted in a substantial erosion of homebuyer affordability over the past year. Therefore, jobs and income growth are necessary for 2014 to turn in another gold-medal performance for the housing recovery.”
The lackluster labor market report for January resulted in a slow start for the residential sector. Only 113,000 jobs were created, less than the 194,000 per month the U.S. averaged for 2013.
Despite the Federal Reserve tapering activities, 10-year Treasury yields and fixed mortgage rates dipped about 0.3 percentage points between early January and early February, breathing a bit more life into refinance activity in the mortgage market.
Based on 30-year mortgage-backed securities outstanding for Fannie Mae, Freddie Mac, and Ginnie Mae in January 2014, we estimate more than $800 billion in securities with a coupon of at least 5.0 percent are in the money and would benefit by refinancing.
Approximately half of the borrowers who refinanced held their previous loan for seven years or longer, according to the Freddie Mac fourth quarter refinance report.
For more information, visit www.FreddieMac.com.
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