June 21st, 2010

The Summer of Distortion



Today is the official start of summer, a season typical of “languid times for real estate and housing markets.”

Last week, the extension of the Homebuyer Tax Credit’s closing deadline was the big news here on the blog (be sure to vote on our new poll if you haven’t already). Congress’ decision to extend the period of time in which borrowers can close on their home loans and still take advantage of up to an $8,000 credit, is likely to be the last government interaction in this targeted support for buyers (and sellers) that has increased, yet distorted, demand.

The latest issue of HSH.com’s Market Trends Newsletter, “Low Rates, but Summer of Distortion,” examines the “the distorting effects of government policy on that demand, and wonder how markets would have fared without those intrusions into their more natural functions.”

Let’s take a look at mortgage rates from last week:

HSH’s market-spanning Fixed-Rate Mortgage Indicator (FRMI) eased by another four basis points [last] week, (.04%) to finish HSH’s weekly survey at 5.11%. Calculated by including rates for conforming, jumbo, and the GSE’s “high-limit” conforming products, the FRMI includes covers a broad swath of the mortgage-borrowing public. A popular alternative to the 30-year FRM comes in the form of a hybrid 5/1 ARM, which closed [last] week with a six-basis-point dip to an average interest rate of 4.17%.

Private-market, non-agency jumbos continue to move toward record low territory and now stand just six basis points above their 2003 low of 5.55%. At the turn of 2010, the average for a Jumbo 30-year FRM was 6.14%, so the decline here has been steady and appreciable.

What can we expect from mortgage rates in the short term?

Mortgage rates have no real place to go at the moment. There isn’t enough domestic economic strength or demand for credit to propel them higher, and while the the influx of cash from the euro-zone mess has pressured them down, the panic rush to safety does seem to have subsided. The Federal Reserve Open Market Committee will meet [this] week to consider these and many other things, but will report no change to policy, a moderate assessment of the present economic climate and a measured concern for the overseas problems and proposed solutions.

Find out what’s in store for this week: CLICK HERE to continue reading “Low Rates, but Summer of Distortion.”

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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3 Responses to “The Summer of Distortion”

  1. Tweets that mention http://blog.hsh.com/index.php/2010/06/the-summer-of-distortion/?doing_wp_cron%3Futm_source=pingback -- Topsy.com Says: June 21st, 2010 at 10:19 am

    [...] This post was mentioned on Twitter by . said: [...]

  2. Mitch Says: June 21st, 2010 at 10:25 am

    Okay, I’ve had some time to think about this, and I’m of the opinion that the initial premise, that of government distortion, is valid. I’m also of the opinion that without the government intervention the housing market would have gone belly up over the last two years and there would be a heck of a lot less home builders and home buyers, since I think banks would have almost stopped lending anyone money. We saw last year that they were even forcing the rich to put down more money on their homes than in the past, even if they had great credit scores.

    So, in my opinion, it was necessary, and if estimates are correct in saying the housing market might not improve until 2012 without help, I think they might still need a bit of help.

  3. Tim Manni Says: June 21st, 2010 at 11:07 am

    Hey Mitch,

    First off, thanks for commenting. As far as banks not lending, besides jumbo borrowers, everyone else has pretty much gravitated towards FHA anyway. I think those estimates are saying that housing won’t improve until 2012, even with all the help we have gotten. The bottom line to me is that the government had to help. They couldn’t not do anything, that would have looked real bad, and I’m sure a lot of elected officials wouldn’t get reelected. I do agree with you that some things could have been worse, but at the Market Trends expresses, b/c of all this intervention, we have no real sense of how bad things are or were, and our markets love stability, even if it’s really bad stability.

    Great comment, hope to hear from you soon,

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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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