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October 18th, 2010

What will it take for mortgage rates to rise?

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After reading the title of this post you may be saying to yourself, “Why would I want rates to rise?” Don’t get us wrong, historically-low mortgage rates have been one of the only things keeping the housing market moving. However, these rock-bottom rates are also an indication of just how poor things are, economically speaking.

That said, mortgage rates trended downward once again last week:

HSH’s overall mortgage monitor — our weekly Fixed-Rate Mortgage Indicator (FRMI) — saw the average rate for 30-year fixed-rate mortgages again decline by four basis points (.04%), finding fresh ground at 4.62%. FHA-backed loans are available at an average rate of 4.31%, but there isn’t much homebuying activity going on at the moment. Hybrid 5/1 ARMs shed three basis points (.03%) to close the week at 3.55% HSH.com’s public data series include rates for conforming, jumbo, and most recently the GSE’s “high-limit” conforming products and so covers much of the mortgage-borrowing public.

So, what will it take for mortgage rates to rise? Perhaps, it’s going to be the Federal Reserve. In a little over two weeks, the Fed will meet and the people will vote. Both the FOMC’s next meeting and the midterm elections occur on the same day; both could provide some shakeup to the markets.

Federal Reserve chief Ben Bernanke has said that the Fed stands ready to employ some more tools, if necessary, to help get the mortgage market going:

With the economy limping along a substandard rate, the Federal Reserve seems likely to embark on a bit of an unknown monetary journey. Having exhausted the value of its primary policy tool (manipulating the Federal Funds and Discount Rates) the Fed is expected to turn to Quantitative Easing (QE), a process where they purchase Treasury obligations, which drives down the yields on these instruments. Investors have been snapping up these guaranteed investments for several years, preferring safety over the ability to garner more sizable returns. By driving their prices up (and their yields down) the Fed hopes to make these investments return so little that investors will be forced to consider other opportunities, including mortgage, corporate and municipal bonds markets and such. However, there are no guarantees that this will work or produce the desired effect, or that doing so will produce no effect on future inflation trends.

The Fed and Congressional elections aside, the one factor that continues to have the most (downward) influence over mortgage rates is the economy:

In a little over two weeks time, the Fed will meet again to discuss how best to proceed (if at all) to support the economy. We will also have elections at the same time, and both are factors which might influence mortgage rates. That said, the largest influences are the weak state of the economy and the lack of building price pressures. In this environment perhaps the only thing which might press rates upward (and mildly at that) would be a surge in demand for mortgage money. While there was a nice lift in refinancing activity over the past week, applications for home purchases continue to soften, and refi activity only comes in bursts at key interest rate levels, and only then if there are sufficient numbers of untapped homeowners who can or want to refinance (or refinance again). That group continues to shrink each week, lower rates or not.

CLICK HERE to continue reading the latest issue of our Market Trends Newsletter, “Fed Stands Ready.”

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 “What will it take for mortgage rates to rise?”

  1. Tweets that mention What will it take for mortgage rates to rise? | HSH Financial News Blog -- Topsy.com Says: October 18th, 2010 at 12:06 pm

    [...] This post was mentioned on Twitter by HSH Associates, Mortgage News. Mortgage News said: What will it take for mortgage rates to rise?: FHA-backed loans are available at an average rate of 4.31%, but the… http://bit.ly/bc1vrM [...]

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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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