Mortgage Market Improves, Consumer Sentiment Rises

Two major trends are boosting economic expectations in the United States, as the mortgage market continues to strengthen and consumers get more confident across the country.

The total amount of seriously delinquent mortgages on single-family homes for Freddie Mac loans fell to 1.58% in May, the lowest rate since the end of 2008. That is still far above the pre-crisis average of about 0.7%, but indicates a continued decline from the peak, when serious delinquencies rose to over 4% at the beginning of 2010.

Two major trends are boosting economic expectations in the United States, as the mortgage market continues to strengthen and consumers get more confident across the country.

The total amount of seriously delinquent mortgages on single-family homes for Freddie Mac loans fell to 1.58% in May, the lowest rate since the end of 2008. That is still far above the pre-crisis average of about 0.7%, but indicates a continued decline from the peak, when serious delinquencies rose to over 4% at the beginning of 2010.

A similar trend was reported by Black Knight, a financial services firm, which estimates that delinquencies and foreclosures have both fallen on a year-over-year basis in May, with total delinquencies down to 4.96% (from 5.62% a year ago) and foreclosures down to 1.49% (from 1.91% a year ago).

More Payoffs, Steady Rates

In addition to fewer delinquencies, the total amount of mortgage debt is falling, according to Freddie Mac, as Americans continue to pay off their mortgages at a strong pace. The “aggregate unpaid principal balance” tracked by Freddie Mac fell by nearly $9.8 billion in May.

At the same time, the total number of mortgages in the government-sponsored firm’s portfolio has risen, up 1.2% annualized to $1.9 trillion year-to-date. The gain in the company’s mortgage portfolio is in contrast to a slight decline in 2014, when its holdings fell 0.2% annualized. Some analysts believe that this pick up is an indication of greater demand for housing.

The demand may also be rising as a result of steady low interest rates for mortgages at a time when many fear a rise in interest rates from the Federal Reserve later in the year. According to Freddie Mac, interest rates have barely budged, staying at 4.02% for a 30-year fixed-rate mortgage, which is down slightly from 4.14% a year ago.

Interest Rate Predictions

Mortgage rates are connected to rates on U.S. Treasuries, and many analysts have predicted that the Federal Reserve will begin targeting higher rates for short-term Treasuries, which will in turn increase borrowing costs for many debt products, including home loans.

However, many analysts also kept that prediction throughout 2014, when interest rates fell significantly. Interest rates fell from about 3% for a 10-year Treasury at its height in early 2014 to nearly 2% at its lowest point.

Currently, bond markets are mostly predicting a rate hike will come after September, when previous predictions indicated a rate hike was inevitable. Previously, inevitable hikes were predicted throughout 2014 and for May and June of this year. Last week the Federal Reserve suggested that an interest rate hike will be gradual, and will be driven by data on the broader economy. However, the Fed increased its prediction for unemployment rates for the year while lowering its GDP growth expectations—two signals that it feels the economy is not yet ready for a rate hike.

“My colleagues and I would like to see more decisive evidence that a moderate pace of economic growth will be sustained,” Fed Chairwoman Janet Yellen said in a conference last week.