By heather.carter@nafinc.com
December 16, 2014
Warren Buffett Says Capitalizing on Todays Mortgage Rates is a No-Brainer
December 02, 2014
Even as the Federal Reserve's quantitative easing program nears the end of its tapering process, mortgage interest rates have remained remarkably low. In fact, as the fourth quarter began, falling rates were encouraging increased late-season activity from homebuyers. According to the Mortgage Bankers Association, mortgage application volumes were again on the rise to begin October, thanks primarily to still-favorable borrowing costs. The 3.8 percent week-over-week jump in applications included a 5 percent jump in the refinance share of activity, with the average contract interest on a 30-year fixed-rate mortgage falling to 4.30 percent for loans with 80 percent loan-to-value ratios. Rates have continued to drop amid recent stock market stagnation, nearing their lowest levels for the year and prompting many analysts and investors to tout the accommodative nature of the current buyer's market. Bloomberg reported Warren Buffett, billionaire investor and chairman of Berkshire Hathaway Inc., told a recent conference gathering in Laguna Niguel, California, there's no better time than the present to pull the trigger on a new home purchase. "You would think that people would be lining up now to get mortgages to buy a home," Buffett told attendees of the conference, hosted by Fortune magazine. "It's a good way to go short the dollar, short interest rates. It's a no-brainer. But so far home construction pickup has been slower than I had anticipated. Construction to come? Buffett's allusion to the need for more housing inventory is supported by the latest Commerce Department data for housing starts, which revealed sporadic activity to close the third quarter. Starts reached their highest annualized rate in nearly seven years during July, only to slump again after labor sector data revealed slow wage growth and a surprisingly modest number of jobs added in August. The 84-year-old Buffett, who heads an Omaha, Nebraska-based company with channels devoted to homebuilding, carpeting and masonry, among other trades, added he anticipates construction rates will pick up once more before year's end - a prediction buoyed by a strong recently released September jobs report. With enhanced household wealth and improved consumer sentiment, demand levels are expected to pick back up, theoretically supported by greater supply. Household formation falls off dramatically in a recession, at least initially Buffett said, adding that the low rate of national homeownership should not be considered a major long-term concern. But that doesn't last long. Hormones kick in and in-laws get tiresome, too." No time like the present Perhaps most promisingly, the recent fall from mortgage rates was preceded by nothing of note - if anything, signs have been pointing to a gradual uptick in borrowing costs, Mortgage News Daily reported. The Fed will complete its bond-buying program by the end of October, and the consensus expectation is for interest rates to rise incrementally over the next year. That still may prove true, and if it does, it only makes the current window that much more attractive for prospective buyers. The most prevalently quoted conforming 30-year fixed rate for the very best scenarios has moved quickly from being worryingly close to 4.375 percent to being excitingly close to 4.0 percent noted Matthew Graham of Mortgage News Daily. The most interesting thing about the movement the past two days is that there is no big-ticket headline motivating it. This is simply traders moving money for a variety of reasons. No one can know what all the motivations for that might be. In any event, the developments bode well for house hunters, who also have easing rates of home price appreciation and an improving job market working in their favor. How long the buyer-friendly environment will last remains to be seen, but as Buffett said, the reaction is to act.