Posts by Frank E. Nothaft
Frank E. Nothaft is Freddie Mac’s chief economist. Nothaft is responsible for forecasts, research and analysis of the macroeconomy, housing and mortgage markets. He is also involved in affordable lending analysis and policy issues affecting the housing finance industry.
One obvious benefit of a mortgage refinance is that it offers a borrower the opportunity to strengthen their fiscal house. The overwhelming majority of homeowners who refinanced in the closing months of 2011 did exactly that.
First some background. For months, fixed-rate mortgages have hovered at or near 60-year lows. In December, the 30-year fixed-rate mortgage averaged 3.96 percent and the 15-year averaged 3.25 percent. Rates in 2012 have dipped even lower at times.
With the New Year fast approaching, ‘tis the season to assess the 2012 outlook for the macroeconomy and housing market. Here are five items from our crystal ball.
Economic growth will likely strengthen to about 2.5 percent in 2012.
U.S. economic growth appears to have accelerated in the waning months of 2011, with fourth-quarter growth expected to come in around 2.5 to 3.0 percent, annualized, by most forecasters. Evidence to support the pick-up was stronger retail sales, low inventory levels, and a 477,000 three-month gain in private non-farm payroll employment from August through November. Given the anemic 1.2 percent annualized growth over the first three quarters of the year, the final quarter could provide some needed momentum as we head into 2012.
Whether by cutting their interest rate or shortening their loan term, homeowners today continue to strengthen their fiscal house. In fact, more than three in four borrowers who refinance their home mortgage are keeping their loan balance about the same or reducing it.
That's one key finding of Freddie Mac's second quarter 2011 refinance analysis.
The economy hit a soft patch during the spring, buffeted by rising energy costs and heightened economic uncertainty. Economic growth should pickup in the second half of the year, supported by accommodative monetary policy, restoring stronger monthly job gains and bringing the unemployment rate down toward 8.6% by the fourth quarter.
Homebuyer affordability remains very high, driven by the twin forces of low financing costs and a buyer's market. Mortgage interest rates have gradually moved lower for most of the spring, with fixed-rate loans just slightly above the half-century nadir attained last fall and likely to remain in a 4.5% to 5.0% range for 30-year product over the balance of the year. Likewise, U.S. house price indexes moved lower during the first quarter, helping set the stage for a high-degree of purchasing power for home seekers.
Recent data show that consumers generally are shedding debt – and lowering or paying down their mortgages is just another way they’re doing it. Between 2007 and the fourth quarter of 2010, mortgage debt declined more than $400 billion, according to the Federal Reserve Board.
With mortgage rates in the four percent range (the likes of which haven’t been seen in more than 50 years), many borrowers have refinanced their mortgages.