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June 6th, 2011

Mortgage rates love slow economic times

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The economy continues to exhibit very little forward traction, and we are likely to start the summer with a bit of an economic swoon. Optimism about future growth still remains, but high food, energy and commodity prices have definitely trimmed forward momentum to a considerable degree. For whatever it has contributed to growth, the Federal Reserve’s program of purchasing an additional $600 billion worth of Treasuries comes to a close by month’s end, and that could exacerbate the slowness somewhat.

Mortgage rates, of course, love slow economic times, since that lessens both demand for credit and the potential for inflation. We do have an inflation problem, but it is not yet of the nature which causes overall price spirals; rather, we have the kind which acts like a tax on the economy, putting the brakes on economic growth — and at a time when it is least welcome.

HSH.com’s broad-market mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages fell by 7 basis points this week, landing at an average of 4.81 percent. FHA-backed 30-year fixed-rate mortgages are arguably driving whatever sales of homes to first-time homebuyers are occurring, and also give low-equity refinancers an option to pursue. Rates for these products also decreased by 5 basis points to finish the week at 4.44 percent. Given the wide differential in interest rates, at least some borrowers should be considering hybrid 5/1 ARMs; whose five-year fixed periods now average just 3.42 percent, down 7 hundredths of a percentage point from last week. Certainly, there are savings to be had for borrowers willing to accept some future interest-rate risk.

FedQEends 6.6.11

The increasingly weak economic outlook has driven mortgage rates to 2011 lows. While we remain about a third of a percentage point above our October 2010 rock-bottom levels, we should be nearing a place where refinance opportunities start to show for an increasing number of homeowners. However, if home prices really are falling quickly again, it might be a good idea for them to move quickly while they still have some equity left. Given all the dreary economic data, it is very likely that mortgage rates will slide a bit more this week.

Be sure to continue reading the latest issue of our Market Trends newsletter, titled “Economy Slips as Fed Steps Aside.”

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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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