July 6th, 2010

HSH Newsletter: “Rates and Economy: Low and Slow”



“Low and slow”: The perfect strategy for cooking barbecue ribs, but far from ideal in terms of an economic situation. Unfortunately, “low and slow” is how our current economic recovery is playing out. Some of the latest economic reports that investors and analysts were hoping would thrust us toward a speedier rebound — June’s job report, home sales (to name a few) — haven’t delivered.

The one bright spot in our slogging economy is mortgage rates:

Of course, weak growth and investors hungry for protection against roiling stock markets are pushing interest rates downward, with constant investor appetites for mortgage-backed securities joining that for Treasury obligations. Mortgages aren’t quite as safe as government-sponsored debt, but close enough, and they sport far better yields at the moment. With the world still awash in central-bank cash, the money has to find a home somewhere.

Here’s what happened to mortgage rates last week:

HSH’s overall mortgage-rate gauge, our Fixed-Rate Mortgage Indicator (FRMI) includes rates for conforming, jumbo, and the GSE’s “high-limit” conforming products and so includes a broad swath of the mortgage-borrowing public. [Last] week, the FRMI declined seven basis points (.07%), beginning the second half of 2010 at a flat 5%. The ‘best’ alternative to the 30-year FRM for many folks, especially jumbo borrowers, is the hybrid 5/1 ARM, which finished [last] week down a full tenth percentage point to land at 4.02%.

Conforming 30-year FRMs moved down by six basis points to new ‘record’ lows, wandering somewhat more deeply into 1956 territory.

In last week’s Market Trend’s review, we announced the lowest rates on record since 1956. Yet with every new announcement of record-setting rates, we keep wondering if these ultra-low rates have lost their appeal. This week, the question remains the same:

Low mortgage rates are a favorable support for housing markets, but the pool of folks who can take advantage of them remains limited, and the recent decline to new record-low levels is in actuality only a small dip from rates we’ve seen on any number of occasions over the past eight months. In this way, and aside from historical reference, it’s not all that much to get excited about.

Given all the above, it would be hard to find a reason why mortgage rates would move upward. It should be noted that the 10-year Treasury legged down in yield [two weeks ago], and again early [last] week, but has remained pretty steady since Tuesday, June 30. Have we stopped falling? Probably, unless another spate of dire news comes [this] week. Let’s call rates largely unchanged for the holiday-shortened week.

CLICK HERE to continue reading “Rates and Economy: Low and Slow.”’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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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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