It’s just not enough…by Tim Manni
Economically speaking, things aren’t feeling all that different now from when we were mired in the recession. Last week’s disappointing GDP report of 1.6% (2nd quarter 2010) was the exact same reading we saw one year ago.
Federal Reserve Chairman Ben Bernanke addressed the country’s disappointing economic growth at the annual Economic Symposium in Jackson Hole, Wyoming. The chairman expressed both optimism for the coming year and that the Fed still has tools it can employ to ward off deflation or even a double-dip recession.
Each week, HSH produces an overall mortgage monitor — our Fixed-Rate Mortgage Indicator (FRMI). The index continues to hang at or near all-time lows. The FRMI includes rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public. HSH’s FRMI declined by a two basis points [last week] (.02%) to 4.78% to close HSH’s national survey. If you prefer a shorter-term fixed-rate period, it’s hard to find the average interest rate for a Hybrid 5/1 ARM to be compelling. At 3.73%, it’s more than a full percentage point lower than it’s FRMI counterpart.
Rates moved down a little bit again[last] week, but at least one of our friends called in to observe that spreads relative to the benchmark 10-year Treasury have widened appreciably over the past few weeks. For the most part, that’s due to very solid flight-to-quality demand for the 100% safety and security of the Federal debt, and also perhaps a reflection that mortgage rates are certainly low enough to keep lenders fairly busy with refinancing at the moment. With about 55-year low interest rates in place, they don’t need to compete quite as hard to get borrowers in the door, and there’s no reason to run a sale if the store’s already full of people.
For more on spreads in influence on mortgage rate pricing, you might check out What Moves Mortgage Rates?.
As we mentioned, 55-year low interest rates aren’t enough to quell the housing market’s woes. Whether you loved it or hated it, one thing is for sure about the homebuyer tax credit: it has distorted demand in the market. While the credit’s impact on home sales is clearly evident in the falloff of demand in recent months, I still wonder if some form of buyer incentive is needed to keep the market going:
Along with the broad economic slowdown, the hangover from the homebuyer tax credit “party” has become increasingly apparent. Arguments about its benefits or drawbacks aside, there can be no doubt that the credit has produced distortion in the housing market. The advancement of already weak demand into the spring of this year created a minor peak of sorts, and we are now deep into the valley on the other side, with (hopefully) no place to go but up in the coming months. Given the summer economic swoon and a lack of job growth needed to foment demand, a rebound will probably come later rather than sooner.
CLICK HERE to continue reading the latest issue of our Market Trends Newsletter, “GDP 1.6%, Vigilant Fed.”
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.