Low mortgage rates are taming rapidly rising house prices and keeping homeowners from overleveraging themselves, according to Freddie Mac [1]’s monthly Outlook [2] for June.
The report, released Monday, compared homeownership rates with refinancing rates and found that homeowners aren't using cash-out refinances to put themselves in bigger debt. During the first quarter of this year, an estimated $10.9 billion net of home equity were converted to cash during the refinance of conventional prime-credit home mortgages, Freddie Mac reported.
The cash-out rate is down from $11 billion in the fourth quarter of 2015 and substantially less than during the peak cash-out refinance volume of $84 billion that came just before the crash, during the second quarter of 2006.
“There is little risk of overleveraging in the conventional conforming prime market,” said Sean Becketti, chief economist at Freddie Mac. “The latest quarterly data show no worrisome cash-out trends."
The median loan-to-value ratio for all prime conventional cash-out refinances was 69 percent in the first quarter of 2016, Becketti said. It was 74 percent in 2000, 73 percent in 2001, and 71 percent in 2002.
This temperance gave Freddie Mac some cause for optimism, despite what otherwise was some disappointing trends. Employment, for example, is not as robust as the GSE would like it to be. Freddie Mac expects unemployment to average 4.9 percent by the end of the year and essentially stay there in 2017.
Freddie Mac attributed the temperance to still-low mortgage rates that, according to Bankrate.com’s Monday numbers [3], were either down or barely up from last week. 30-year mortgages hovered around 3.55, while 15-year mortgages hovered around 2.75.
Such low rates have helped to level escalating home prices nationwide, Freddie Mac reported. And that escalation is showing no signs of slowing down. FreddieMac ’s house price appreciation forecast for 2016 has increased by 20 basis points to 5 percent, and the agency believes that it will increase by 40 basis points, to 4 percent, next year.
For those worried about how last week’s Brexit might be affecting things, U.S. Treasury [4] Secretary Jack Lew might put your mind at ease. Lew told CNBC [5] Monday that he sees no signs of a financial crisis for the U.S. arising from Britain's decision to leave the European Union. Lew told CNBC that the Brexit’s effect has “been an orderly impact so far" and that he doesn’t expect any significant trouble for the American economy.