Since end of 2010, mortgage rates flat overallby Tim Manni
Mortgage rates declined once again last week, slipping back just four basis points. As news shifted from economic recovery to the horrific natural disasters which occurred in Japan, there was word on Friday of a “repatriation” of cash to Japan from selling some holdings of Treasuries, but the overall effect was on interest rates was mild, explains HSH.com’s VP Keith Gumbinger in the latest issue of our Market Trends Newsletter:
HSH.com’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — noted that the overall average rate for 30-year fixed-rate mortgages declined by four basis points (.04%) to finish the week at an average 5.14%. A key component of the first-time homebuyer market, FHA-backed 30-year fixed-rate mortgages slipped by a lone basis point to land at 4.80%. Hybrid 5/1 ARMs, often the most viable alternative to the traditional 30-year FRM (especially for jumbo buyers) also eased back a little, shedding four hundredths of a percentage point (.04%) for a second consecutive week to close the period at 3.83%.
Are things getting back to normal?
After a substantial rise which began in October 2010 and crested in December, rates have remained fairly flat overall, pulled in different directions by an economy which is growing at a meager pace. A clue that financial markets are healing comes in the form of narrowing differences between benchmarks such as the ten-year US Treasury (a virtually risk-free investment) and more risky products like residential mortgages. To be fair, Treasuries yields remain low as the Fed continues its QE2 program to support the economy, but the yield markup over Treasuries (called “spread”) for things like first mortgages has returned to near normal.
Before the financial crisis hit back in 2007, the spread between 30-year FRMs and the 10yr Treasury typically averages between 150 and 160 basis points before blowing out to as much as 280 at its peak. Presently, we find ourselves back in normal range again. Spreads for jumbo 30-year FRMs, perhaps the best expression of private market concerns do remain elevated compared to a norm of perhaps 180 basis points, but at about 210 right now they are closing in on normal once again — and that in a market which still has considerable risk and a secondary market which barely exists. That spreads have returned to near normal levels does suggest that the lending climate, while still tight, may be moving gradually toward a more welcoming stance before too long.