WASHINGTON (9/28/12)--Record low mortgage rates, like those reported this week, "are something of a double-edged sword for credit unions," Credit Union National Association (CUNA) Chief Economist Bill Hampel said Thursday.
"On the one hand, the resulting refinancing boom will generate significant income. Also, the stronger the recovery in the housing market, the better the outlook for moderation in future National Credit Union Administration (NCUA) corporate stabilization assessments. On the other hand, higher-rate mortgages in credit union portfolios are being prepaid, and replacing those mortgages with new mortgages at these very low interest rates is perilous," he said.
Five-year adjustable-rate mortgages (ARMs) were the only mortgage products not to set records for the week ended Sept. 27. Freddie Mac reported that all-time low average rates for 30- and 15-year fixed-rate mortgages and one-year ARMs "helped keep homebuyer affordability high and refinancing strong to support an already improving housing market."
Thirty-year fixed-rate mortgages averaged 3.40% this week, 3.49% last week and 4.01% this time last year. Fifteen-year fixed-rate mortgages averaged 2.73% this week, 2.77% last week and 3.28% this time last year.
Freddie Mac Vice President and Chief Economist Frank Nothaft said the fixed-rate decreases were largely due to the Federal Reserve's purchases of mortgage securities and should support an already improving housing market.
Five-year ARMs averaged 2.71% this week, compared with 2.76% the previous week and 3.02% the same week last year.
The average one-year ARM was 2.60%, down slightly from the 2.61% average reported last week. One-year ARMs averaged 2.83% this week last year.
Sales of existing homes continued to improve last month, as the national median price rose on a year-over-year basis for the sixth consecutive month. According to the National Association of Realtors (NAR), total existing-home sales--which are completed transactions that include single-family homes, townhomes, condominiums and co-ops--rose 7.8% to a seasonally adjusted annual rate of 4.82 million in August.
The August 2012 number is 9.3% higher than the 4.41 million-unit level reported in August 2011. New housing starts also increased last month, reaching the highest level seen in two years, the U.S. Department of Commerce reported.
These signs of recovery in the housing market bode well for credit unions and the economy in general, and indicate that consumers are generally more confident and willing to spend, CUNA senior economist Mike Schenk said last month.