August 10th, 2009

“Better Data Equals Higher Rates — Maybe”



Improving economic data sent mortgage rates rising toward week’s end. Interestingly, the latest issue of HSH’s Market Trends Newsletter, “Better Data Equals Higher Rates — Maybe,” questions whether our improving economy will continue to put upward pressure on rates.

“One thought did occur to us this week beyond the conventional wisdom. It’s a given that an improving economy will of course drive interest rates higher, as demand for credit and prospects for inflation increase. Usually, this has a corresponding effect on mortgage rates (particularly fixed-rate mortgage rates). With so many of the troubles in housing and mortgage financing so evident over the past couple of years, and the risks of making loans so clear and persistent, we’re left to wonder:”

“If there are presently substantial “risk premia” built into interest rates — add-ons to the base costs of credit, built into the interest rate and fees to offset the possibility of loss to the lender/investor — then would improving mortgage-specific fundamentals in the form of jobs, firming home prices, and eventually subsiding foreclosures — foster a decline in those built-in cost kickers? If so, will this cause mortgage interest rates to rise less than they otherwise would, or even help them to fall in the face of an improving economy?”

“If poor fundamentals = higher risks = higher rates is true, than could better fundamentals = lower risks = lower rates also be possible? Just something to consider and ponder as we grind toward recovery.”

“Next week, though, we’ll at least start with the old paradigm. A better economy has produced a rising stock market, and that’s coming at the expense of low yielding investments like bonds and mortgages. The Fed will continue its part to help keep rates low, but even relatively small amounts of investor appetite — private money — are needed to keep rates from rising much. We’re on a upward path for next week, at least to start, and will move a little higher in the recent range as a result. Call it an 8-10 basis point move higher in the FRMI, and check back next week for our new two-month forecast.”

Click here to continue reading “Better Data Equals Higher Rates — Maybe.” 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.

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About the HSH Blog's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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