Mortage drop autumn

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Anders Liljehom seemed to be outsmarting the global economy.

Just a few months ago, virtually every financial expert was warning that years of record-low mortgage rates were about to end. The Federal Reserve was preparing to raise interest rates for the first time since the Great Recession, a move that was supposed to increase the cost of borrowing across the economy.

Liljehom, a 38-year-old from Portland, decided he would act first: He refinanced his mortgage in December, with only days to spare before the Fed raised rates.

But since then, the economy has defied almost every forecast. Analysts are debating the probability of a recession rather than the progress of the recovery. Instead of raising interest rates, the central bank is veering in a far different direction, hoping not to cut them. And that means mortgage rates — much to Liljehom’s chagrin — are lower now than when he refinanced.

“I could have saved more money if I’d waited, ” Liljehom said. “My interest rate is still quite low, but it does sting a little knowing it could have been lower.”

It is yet another unanticipated ripple effect of the global economic slowdown: For many Americans, who have benefited from a collapse in gas prices, interest rates have plunged on mortgage and auto loans. The decline in rates comes as most of the readings on the global economy have been glum. China’s meteoric economic growth is starting to plateau, striking fear in investors around the world. The recoveries in Europe and Japan are stalling, and policymakers are having a harder time jump-starting them.

But all that bad news has an upside: ultra-low rates. Analysts are wary of predicting how long this grace period will last, but many consumers are welcoming the extension of easy money that many feared had passed them by.

The drop helps to “create some much-needed breathing room in the household budget, ” said Greg McBride, chief financial analyst at Bankrate.com.

Since Jan. 1, the average rate on a 30-year fixed mortgage has dropped from 4.01 to 3.62 percent, according to Freddie Mac. Mortgage rates have sunk to levels not seen in nearly a year and are close to their all-time low, prompting economists to reduce their forecasts for rates in 2016.

The drop also exposes the difficulty of attempting to time what is often the single-biggest investment of many Americans’ to the vagaries of the financial market. Home buyers trying to find the perfect time to buy or refinance may face confusion over when to strike. And some people who rushed into the market because they thought rates were going to spike may now be wondering if it’s time to refinance.

“It’s very hard to be able to tell people what is the path for where we go from here, ” said Jonathan Smoke, chief economist for Realtor.com. “Take advantage of the opportunity right now, and it’s completely uncertain how long this opportunity is going to be there.”

The Mortgage Bankers Association’s index of refinance activity jumped 16 percent in just one week this month as mortgage rates hit their lowest point this year. Rates have since moderated but are still well beneath what economists had projected.

Marci Glassman, 47, of Boise, Idaho, called her bank late last year to ask about refinancing but never got around to it because of the holidays. Now that rates are lower, Glassman said that she is glad she procrastinated and could use the savings to pay for home improvements or college tuition for her two sons.

“I thought, maybe I’ll look at that quote and call them back, ” Glassman said.

And it’s not just mortgage rates that have moved lower. The cost of auto loans has also fallen since the end of last year, providing another boost to an industry that has enjoyed record sales. According to Bankrate.com, the average rate on a five-year new-car loan this week was 4.29 percent, down from 4.4 percent in December.

Meanwhile, even though the sharp drop in oil prices is wreaking havoc on energy companies, lower gas prices mean consumers have more money in their wallets. The average cost of a gallon of gas fell from $2.14 at the end of December to a low of $1.83 earlier this month, a 14 percent drop. Gas prices have edged up since then but are below December’s level.

A longer period of ultra-low mortgage rates could also provide a boost to the housing market, which was the epicenter of the 2008 financial crisis. Mortgage rates are closely tied to the movements of 10-year Treasury bonds. They are considered one of the safest assets in the world, and investors have flocked to them amid the turbulence in financial markets. The surge in demand has sent yields plummeting — and mortgage rates have followed suit.

Meanwhile, investors are also betting that the Fed won’t raise its benchmark interest rate again when it meets next month — and possibly not at all this year. The central bank’s massive stimulus efforts over the past seven years drove mortgage rates to record lows. The cost of a home loan reached a record low of 3.35 percent in late 2012, according to Freddie Mac, just after the Fed announced its final round of economic stimulus.

The more slowly the central bank removes that support, the more likely mortgage rates are to stay low. The Mortgage Bankers Association this month lowered its forecast for 30-year fixed-rate rates at the end of the year to 4.3 percent, down from the 4.6 percent expected in January, on the expectation of fewer Fed rate hikes.

“I can imagine for many refinance borrowers this is a very challenging time, trying to judge if any particular day is the right day, ” said Mike Fratantoni, chief economist for the Mortgage Bankers Association, an industry group.

Not everyone has been able to benefit from the recent decline in mortgage rates. Tighter lending standards mean many potential buyers might have trouble qualifying for loans. And those who are eligible may have already taken advantage of years of low rates.



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