Monday’s Market Trends Recapby Tim Manni
The latest issue of HSH’s Market Trends Newsletter, “Mortgage Rates and the Rumor Mill,” documents how the Fed’s aid to Main Street coupled with an industry rumor have served to keep mortgage rates down for nearly two weeks. Since the Fed’s announcement two weeks ago, mortgage rates have been moving in a direction that has enticed consumers. “Mortgage rates moved downward this week, continuing an enthusiastic response to the Federal Reserve’s November 24 plan, and the ongoing decline in still-influential Treasury yields.”
“Conforming mortgage rates have been the primary benefactor of the Federal Reserve’s influence. The average for a conforming 30-year fixed rate mortgage slipped to a weekly average of 5.57%, down considerably from an October 15 recent peak of 6.75%, and well below the 6.06% seen on the date of the announcement. As well, the 10-day string of rates below 6% represents the longest such string since February.”
“If the hope of the Federal Reserve was to influence consumer behavior for the benefit of the market, it certainly worked, and looks to continue to for at least a while.”
“Wednesday evening brought another, if perhaps unintended, influence on consumer behavior. A news article noted that a Treasury plan might be in the works to lower interest rates for mortgages to 4.5%, a headline-making number apparently based upon a leak of a of a possible plan — not an actual program. While no one has claimed credit for the rumor, national trade associations for the homebuilders and Realtors have agitated for such programs for several weeks. The rumored plan would have targeted that impossibly cheap mortgage money at homebuyers, but no plan was actually announced and no government sources would confirm that one might even be coming.”
“The downside, of course, is that potential borrowers whose interest in (re)financing may have been spurred by the rumored Fed program may now be inclined to stay on the fence in hopes of saving even more money. It’s the same kind of perverse incentive which drives down home prices: the longer buyers wait, the lower the cost. The rumor, then, would if anything had the opposite effect of what was intended.”
To continue reading the latest issue of Market Trends click here. HSH’s free weekly Market Trends Newsletter, an in-depth analysis of various financial markets of the week prior, is published every Monday. Email subscribers — receive it in your inbox by Friday night, so sign up today! Also, be sure to check in with our Market Trends blog for all news relating to any weekly shift in mortgage rates.