Despite the Federal Reserve's taper activity, long-term rates have eased over the past month, providing a chance for some borrowers who are holding older mortgages an opportunity to refinance, according to Freddie Mac's U.S. Economic and Housing Market Outlook for February.
The reports finds that the lackluster labor market report for January resulted in a slow start for the residential sector. Only 113,000 jobs were created – fewer than the 194,000 per month the U.S. averaged for 2013.
Despite the Federal Reserve tapering activities, 10-year Treasury yields and fixed mortgage rates dipped about 0.3 percentage points between early January and early February, breathing a bit more life into refinance activity in the mortgage market, says Freddie Mac.
Based on 30-year mortgage-backed securities outstanding for Fannie Mae, Freddie Mac and Ginnie Mae in January, Freddie Mac estimates more than $800 billion in securities, with a coupon of at least 5.0%, are in the money and would benefit by refinancing.
Approximately half of the borrowers who refinanced held their previous loan for seven years or longer, according to the report.
‘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," notes Frank Nothaft, Freddie Mac's vice president and chief economist.
"However, if rates continue their upward trend, it will be difficult for many families to purchase a home without seeing some income growth. Rising home prices and interest rates, along with little to no income growth, has resulted in a substantial erosion of home-buyer affordability over the past year. Therefore, jobs and income growth are necessary for 2014 to turn in another gold-medal performance for the housing recovery," he concludes.
Freddie Mac's entire outlook report can be found here.