Picture a scene out of a great action movie... You know, where the Hero is fighting the Bad Guy and, inevitably, winds up hanging by his fingertips on the edge of a dangerous cliff, all while thrilling music plays in the background? That’s what’s going on right now – only the Hero is our nation’s mortgage rates and they’re teetering on the edge of a fiscal cliff. The sad part is that our mortgage numbers have made such great strides lately – but not in terms of the rates themselves (those are still hovering at record-low levels). Instead, we’re seeing progress in the form of mortgage delinquency numbers. According to a report just released by Lender Processing Services, 7.12% of U.S. mortgages are delinquent right now.
That may sound like a lot (after all, in a “normal” economy less than 5% of the nation’s mortgages are delinquent), but it’s far less than the 9.06% that were delinquent this time last year. And, when you look at American homes that are actually in the foreclosure process, the numbers look even better. Right now, only 3.51% of the nation’s homes are going through foreclosure right now – compared to the whopping 16.42% that were in the foreclosure process this time last year. So, these latest mortgage numbers are a sign that we’re on the right track – even if the train is moving at snail speed. They prove that Americans are better-able to pay their mortgages now than they were in 2011, and that’s a great thing. If the nation’s housing market can keep up this pace, it may take a long time to regain full-blown healthy status, but at least we’re headed in the right direction. Unfortunately, though, we could be dealing with a case of “one step forward, two steps back”. That’s because mortgage rates don’t have the option of crossing their fingers and hoping for the best. Instead, they have to prepare for the worst – which is exactly what they’re doing right now. While millions of Americans were drinking Egg Nog and opening Christmas carols, mortgage rates were preparing to go over the fiscal cliff. Specifically, the average 30-year fixed mortgage rate slid back to 3.59% while Santa was making his deliveries. The average 15-year fixed mortgage rate now sits at 2.87%. Both of those drops come a week after rates had risen slightly . It’s proof that the markets are preparing to go over the fiscal cliff – since President Obama and Congress have yet to come up with a solution with less than a week to go before the current deal expires.
Even though a “soft landing” is possible (for example, President Obama and Congress could negotiate a solution after January 1st that averts full-blown disaster, or they could simply agree to extend the current policies while they come up with a permanent solution), mortgage rates are already adjusting for a “hard thud” off the cliff. Remember, mortgage rates are used to gauge the nation’s overall economic health. The higher they are, the healthier America’s economy is (or is poised to be in the not-too-distant future). Plus, mortgage rates are also used as an incentive – especially now. The Federal Reserve has admitted as much by creating its Quantitative Easing program that is aimed at keeping rates low through 2015. By lowering rates even further right now, it will (hopefully) encourage people to buy homes before the economy sinks into another recession created by the fiscal cliff. So, the closer we get to New Year’s Eve, the tighter the grip gets on the cliff. Unlike the action movie (where the Hero always wins) only time will tell who will win this struggle!
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