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April 5th, 2010

Rates Rise (A Little), However, Not a Bad Transition

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The transition from a Federally-backed mortgage market to a more private-oriented one is officially underway. While rates did rise during this transition, the increase was relatively minor.

According to the latest issue of HSH.com’s Market Trends Newsletter, “Mortgage Rates Rise (A Little)” (emphasis added):

Mortgage rates rose [last] week, at least a little bit. Most of the increase wasn’t due especially to the end of the Federal Reserve’s MBS purchase program, but rather to good, old-fashioned economic data and perhaps even some increase in investors searching for places to put their money outside of ultra-safe investments.

The DJIA is now approaching 11,000 as a mostly-steady five-week increase continues, oil and gold prices are again firming and represent competing investment opportunities, especially if the economy continues to show signs of healing. Underlying interest rates which influence mortgage rates continue to tick higher, with a yield on the 10-year Treasury now at levels last seen in November 2008 — not coincidentally, perhaps, just weeks before the Fed began its initial program. How have things changed since then? The last time the 10-year Treasury was this high, conforming 30-year FRMs were averaging 6.38% and spreads were nearing modern record levels. Not so today, where ‘risk premiums’ continue to get thinner, and are actually near or better than pre-financial crisis levels.

The overall average 30-year fixed-rate mortgages (FRM) tracked by HSH.com’s FRMI added six basis points (.06%) to [the week ending March 26] average, landing at 5.41%. The FRMI includes conforming, jumbo and the GSE’s “high-limit” conforming products in its calculation. The FRMI’s 5/1 Hybrid ARM counterpart climbed by just two basis points (.02%) to close the survey at a flat 4.5%. Most of the increase in the FRMI came from conforming rates, which rose by nine basis points from [the week ending March 26].

Where will rates go from here?

We’ve been asked about the now-upon us change in the mortgage marketplace many times over the past few months. As we transition away from a Federally-backed mortgage market to a more private-oriented one, cues for interest rates will come from more traditional factors, including economic growth or decline, inflation or deflation concerns, and investor appetites. This shift from certainty back to the vagaries of the marketplace will probably have some unexpected twists and turns, but at least at the moment, we seem to be in a fairly gentle handoff period. Intervals of rising rates are sure to come at some point; the April to July period over the last couple of years has seemed particularly vulnerable to such things. Increases in rates of three-eighths to as to as much as three-quarters of a percentage point have been seen during this period since 2006. There’s no way to know if one will come, but if it does, it’s a good thing we’re starting from extraordinarily low levels.

What’s up for this week?

Rates are likely to firm a little bit more yet, based purely on the direction of underlying rates as this week progressed. The stock market may be starting to be due for a breather before long, but perhaps not just yet. Figure another 4-5 basis points increase in the FRMI by week’s end.

Click here to continue reading “Mortgage Rates Rise (A Little).” HSH.com’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.

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One Response to “Rates Rise (A Little), However, Not a Bad Transition”

  1. wonsokcj (wonsokcj) Says: April 6th, 2010 at 5:06 am

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About the HSH Blog

HSH.com'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 HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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