In a recent meeting, the leaders of the European Central Bank (ECB) shared their belief that it will likely be necessary to release an additional stimulus package to facilitate a recovery for the struggling economies in the region.
The news of the anticipated release of another stimulus created a strong rally in the European financial markets and a sharp decline for the euro, which fell to a two-week low versus the dollar. Here at home, the news of the probable stimulus resulted in lower mortgage rates.
Part of the reason that mortgages rates fell here is that the stimulus package would more than likely include an expansion of the ECB’s bond buying program. Investors have the expectation that the ECB will begin to have more demand for bonds. As a result of this increased demand, the potential yield for bonds across the globe is almost certain to decrease. This includes mortgage-backed securities here in the U.S., so mortgages rates fell in reaction to the news.
While an environment of declining interest rates might not be good news for the economy, since rising interest rates typically spur more investments and more activity overall, it is very positive news for buyers and sellers of real estate.
It’s a great time to buy right now, especially considering that interest rates are still near historic lows and likely to rise eventually. Each time an interest rate is increased by a quarter of a point, it represents an additional $9,518 in payments over the term of the loan. What this means is a substantial decrease in purchasing power, since the buyer will need to be able to prove there is an additional 3 percent of income to qualify for the same loan.
Sellers are benefiting from a stable market with low inventory levels and high numbers of serious, well-qualified buyers. Simply put, the percentage of buyers who are actually serious and ready to move is higher in winter than in other months. This adds to the fact that low inventory levels typically bring short market times and high sale prices. There’s no question that the time to act is now, whether you’re considering a move to downsize and cash out some equity or you want to build that trophy home on the waterfront.
It’s hard to believe sometimes that a meeting of European bankers can have broad implications for the financial markets in the U.S., but it is without a doubt a global economy and everything is connected. Keeping that in mind, it will be interesting to see what happens when the ECB reconvenes in early December to make its final decision about whether to implement a new stimulus package for the region.
If the potential for a new stimulus can result in lower mortgage rates, what kind of impact will an approval about a stimulus have on mortgage rates?
For a detailed consultation about your financial situation, equity position or potential buying power, please contact me at the number below.
Patrick Stoy (NMLS# 39527; Market Consulting Mortgage NMLS# 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.