Mortgage rates on the rise. Why?

We’ve noted many times that even mild improvements in the economic picture would likely turn mortgage rates upward a little bit.

After a less-dire tone to some key economic reports two weeks back (and even rumors of some improvement on the Euro-mess front), we got our first taste of that last week, as mortgage rates moved off record lows to former record-low levels seen just a few weeks ago, according to HSH.com’s latest Market Trends newsletter.

Over the past 10 days or so, most major stock indexes have moved considerably higher, with the Dow Jones adding about 1200 points. The money to push stocks higher has come from the selling of “safer” investments, like Treasuries, and that has pushed yields and mortgage rates a little higher.

The mild rise in mortgage rates is not a great concern

Frankly, aside from kicking refinance activity a little bit higher, the effect on mortgage and housing markets of even record-low rates has been slight. At the moment, homebuying activity is more affected by factors other than rates.

30-year, 15-year fixed-rate mortgages

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 (conforming, non-conforming and jumbo) increased by fourteen basis points (0.14 percent) from the week prior, rising back to early September levels to an average 4.46 percent.

Get your customized mortgage quote today

The FRMI’s 15-year companion followed the 30-year upward, closing the week at 3.76 percent after a 13-basis point rise.

FHA mortgages

Important to homebuyers and low-equity-stake refinancers, 30-year FHA-backed mortgages nudged back over the 4 percent mark, increasing by nine hundredths of a percentage point.

5/1 ARMs

The overall average for 5/1 Hybrid ARMs managed a week-to-week move of seven basis points to land at 3.20 percent.

What do low rates really mean?

The homebuying market is being impacted by a lot of things, but the price of mortgage money today isn’t really among them.

Along with income, the mortgage’s interest rate is a regulator of how much money a borrower might be able to obtain, relative to the income available to use toward a monthly payment.

When mortgage rates are low, a given level of income allows the borrower to carry a larger loan amount, but just marginally so, and of course the inverse is also true. In this regard, low mortgage rates may serve to help steady home prices, since buyers in the market can ostensibly afford somewhat higher-priced homes.

We need consumer confidence!

But low rates, as alluring as they are, cannot alone overcome all of the other obstacles in the market.

Most notably, a weak economy and corresponding poor job market have failed to produce the kind of confidence needed to feel comfortable making the kind of forward-looking commitment which is the purchase of a home. Confidence is further eroded by the very real possibility that this expression of faith might turn into an albatross, as it has for so many of today’s homeowners and former homeowners.

Consumer confidence figures are at a low ebb and seem unlikely to improve much for the foreseeable future. Our fractious political body is now turning its attention to 2012 elections, diminishing the likelihood that solutions to our many economic problems are coming anytime soon.

We need mortgage rates to firm

If the economic news is generally “better”, interest rates cannot easily fall. Should an emerging issue darken the picture, rates will ease.

To the extent that volume is playing a role in firming mortgage rates, well, the minor rise in rates last week will tend to temper demand, and any premium would shrink as a result. It’s worth pointing out that if you want to see the economy get its legs back under it, you cannot expect lower mortgage rates, too. At this stage of the game, there’s little benefit in cheering for lower rates if it comes at the expense of economic promise.

Will rates keep rising?

Rates bumped higher last week, a little higher than even we forecast the week before. They have probably overshot the mark to some degree, and with a fuller calendar of data this week, including reports on prices, home construction and sales, and more, some settling is probably the most likely course, so a decline of a few of basis points is expected.

Be sure to the latest Market Trends newsletter in its entirety.