This year started off with a slight plot twist. After mortgage rates rose most of 2013, 2014 began with a slight drop in rates, although they did not sink back to the levels seen at the beginning of 2013.
According to the latest Economic and Housing Market Outlook from Freddie Mac, borrowers who were holding older mortgages were given a second chance to refinance due to a pullback in mortgage rates.
"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,” Frank Nothaft, Freddie Mac vice president and chief economist, said.
But should borrowers bank on being given this same opportunity again?
Freddie Mac explained that other factors besides rising rates could negatively impact borrowers.
“If rates continue their upward trend, it will be difficult for many families to purchase a home without seeing some income growth,” Nothaft said.
“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,” he added. “Therefore, jobs and income growth are necessary for 2014 to turn in another gold-medal performance for the housing recovery."
The key to a strong 2014 is broad-based improvement in employment and family income, Freddie noted.
“We expect housing to come out of the gate at a good clip at the start of 2014 bolstered by an improving economy, but the lackluster labor market report for January has resulted in a slow start for the residential sector,” the report stated.
The enterprise predicts the unemployment rate to stay at 6.6% in the second quarter of 2024 and fall to 6.4% by the end of the year.
And although the Federal Reserve began its tapering activities at the beginning of January, 10-year Treasury yields and fixed mortgage rates generally eased over the month, dipping about .3 percentage points between early January and early February, which helped give refinancing activity a second wind, Freddie noted.
However, in the end this could all be unfruitful without income growth.