May 2nd, 2011

Mortgage rates continue to fall with future conditions still unclear



Mortgage Rate ConceptOverall, mortgage rates dipped again last week as the future direction of inflation and our economic recovery remain unclear. Last Wednesday, the fed concluded a two-day meeting in which Federal Reserve Chairman Ben Bernanke held an unprecedented press conference immediately following the meeting.

As we anticipated, the chairman revealed little new information about how present and future conditions will influence the mortgage market.

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The fed did increase their future projection for inflation, however, one factor that we mentioned can have considerable influence over mortgage rates. The fed also downgraded projections for the country’s economic growth:

The Fed did also release their new forecast for GDP growth and inflation for the coming year and beyond. The new forecasts call for slower economic growth (centering around a 3.2% annual pace, down from about 3.7% in the January forecast). Inflation expectations were ratcheted up considerably; the Personal Consumption Expenditure (PCE) inflation (the Fed’s preferred gauge) increased from a January forecast of about 1.5% to a new 2.4% expectation. Essentially, growth is expected to be weaker and inflation somewhat higher.

The fact of the matter is that growth is already weaker and inflation rising…In his press session, Mr. Bernanke took some pains to express that the Fed believes these inflation trends are “transitory”; rising food and gasoline prices may indeed foster slower growth, and such slowing would eventually serve to cool price pressures, but would carry unwanted implications for the economy as well. 

Despite these inflation expectations, mortgage rates managed to fall again last week:’s overall mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages declined by three basis points (.03%) to ease to 5.06% A key component of the first-time homebuyer market, FHA-backed 30-year fixed-rate mortgages fell by just two basis points, falling to 4.72% for the week. Although there are of course future concerns, at least some borrowers should be considering hybrid 5/1 ARMs, which have an attractive initial interest rate averaging 3.66% this week, down five-hundredths of a percent from…[the]…final average [two weeks ago].

Mr. Bernanke also addressed the fed’s QE2 program, confirming that it will expire in June as originally planned. QE2, a program which some thought was instituted to foster economic growth, was more put in place to temper the growth of interest rates (not so much to lower rates, but to keep them from rising).

That said, it’s important to note here that we’re unsure just how influential this program was on the economy. We’ll certainly get a sense to what degree, if any, when the program closes.

According to’s latest Market Trends Newsletter, “To the extent that the Fed’s move propped up or added to GDP growth is the amount of pullback to be expected when the program comes to a close in June. If we are still feeling the effects of higher prices (and it is very likely that we will) it is very possible that mortgage interest rates could find more reasons to decline than to increase as growth slows, much as they have found reasons to decline in recent weeks as the economic news has turned more gray than rosy. That’s still a bit off in the future, and of course, growth may turn higher between now and then.”

To learn more, continue reading our latest Market Trends Newsletter, “Fed speaks, says little, rates ease. More coming?’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

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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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