“Mortgage Market Armageddon, or Non-Event?”by Tim Manni
By Thursday we will know.
In just a few days we’ll find out if the end of the Fed’s MBS-purchase program, that has kept mortgage rates near historical lows, will bring about a significant rise in rates. Due to several factors, the absence of the Fed won’t be as bad as we originally predicted (emphasis added):
As we’ve detailed in our latest Two-Month Forecast and over the past couple of weeks in our weekly Market Trends [Newsletter], we don’t expect there to be a huge change in mortgage interest rates. However, at least some firming should be expected as we move away from the safe, steady arms of the Fed and into the wilds of (at least partially) privately-driven markets, where demand for yield and concerns about fiscal policy and inflation inform investment decisions.
Just as some of those concerns caused a flare in rates last year, they will likely do so again. Underlying interest rates did move higher [last] week (no doubt influenced by the slow but steady rally in equity prices), but with muted effect on mortgage prices, at least so far.
The overall average 30-year fixed-rate mortgages (FRM) tracked by HSH.com’s FRMI added three basis points (.03%) to last week’s [the week ending3/19/10] average, landing at 5.35%. The FRMI includes conforming, jumbo and the GSE’s “high-limit” conforming products in its calculation. The FRMI’s 5/1 Hybrid ARM counterpart eased back by the barest possible amount (.01%) to close the survey at 4.48% At 5.09%, Conforming 30-year FRMs rose by 0.04% [last] week and remain in very comfortable territory.
Mortgage rates seem likely to firm somewhat [this] week. As mentioned above, underlying rates have moved higher and are nearing year-beginning levels when conforming rates rose to about 5.25%. Spreads have narrowed of late, cushioning the rise to some degree, but there are limits on how much further they can compress. The end of the Fed program, a fresh job report, and a pile of other significant economic data leave us to expect a rise in rates [this] week of perhaps 6-10 basis points in rates, leaving them at only fantastic (instead of unbelievable) levels.
Click here to continue reading “Mortgage Market Hits Fed End.” HSH’s free Market Trends Newsletter, an in-depth analysis of various financial markets from the week prior, is published every Monday. Email subscribers receive it in their inbox 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.