Mortgage Rates Fell Last Week, Future Movement Unclearby Tim Manni
Mortgage rates managed to ease yet again last week, despite being on the cusp of uncertainty as the Federal Reserve’s exit from the mortgage market is just two and one half weeks away. According to the latest issue of HSH.com’s Market Trends Newsletter, “there’s not a great amount of clarity into what comes after.”
The Fed meets on Tuesday [of this] week for a one-day meeting, the shortest such event in over a year. It’s more than likely that there will be discussions of contingency plans for mortgages should market conditions turn adverse in the months ahead, imperiling the relative stability forming in the housing market.
What happened to rates last week?
…[last] week’s overall average for 30-year fixed-rate mortgages tracked by HSH.com in our FRMI shed another four basis points (.04%) this week, dropping to 5.30%, an exact match for the week ending 12/11/09. The FRMI includes conforming, jumbo and the GSE’s “high-limit” conforming products in its calculation. The FRMI’s 5/1 Hybrid ARM counterpart also dipped by four basis points to 4.44%, coincidentally also matching its December 11 mark. The 5/1 has been on a near-steady decline since a year-starting spike to 4.85%.
While few expect any change to the Fed’s monetary policy, the lack of significant market reaction to its recent move to the discount window borrowing rate (the rate at which the Fed itself lends to banks) may prompt them to make another move before too long. Interbank lending has improved to the point where there are few actual requests for the Fed to provide funds, and increasing the cost of doing so has the simple effect of pushing would-be borrowers back into the open market for any needed funds. In that way, it promotes a more normal market.
The movements in mortgage rates have surprised us a little in the past few weeks. Although there’s been little pressure in one way or the other, the overall pattern has been one of slight but steady decline. The difference between 30-year fixed rate conforming and true private-market jumbo prices continues to narrow, and this week’s 73 basis point differential is the smallest since November of 2007. Perhaps we will eventually return to a normal, privately influenced mortgage market after all. In the meanwhile, the economic calendar’s a bit fuller next week and there is a Fed meeting. Does the trend of gently easing rates continue next week? Underlying interest rates seem to point to a slight lift, at least as we start the week.
Click here to continue reading “Mortgage Rates Continue Slight Easing Trend.” 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.