Low mortgage rates are more important than everby Tim Manni
The next few months will be critical ones for the housing market. As both homebuyers and refinancers gear up for what is bound to be a busy couple of months, mortgage rates will need to remain at current levels to foster activity.
While gradual economic improvement is providing mortgage rates with a natural nudge upward, struggles overseas and actions by the Federal Reserve are helping pull rates back in the other direction.
Mortgage rates steady last week
As we predicted last Monday, mortgage rates remained pretty stable last week. According to HSH.com’s broad-market mortgage tracker, our weekly Fixed-Rate Mortgage Indicator (FRMI), the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbos) eased by a single basis points (0.01 percent) from the previous week, slipping to an average 4.33 percent. The series low to date is 4.32 percent on October 7.
The FRMI’s 15-year companion closed the week with a three basis point decline to 3.62 percent. Important to homebuyers and low-equity-stake refinancers, 30-year FHA-backed mortgages held perfectly steady at 3.94 percent, while the overall average for 5/1 Hybrid ARMs did the same to hold at 3.09 percent.
Refinancers need low mortgage rates
Despite how attractive current rates are for FHA-backed mortgages and Hybrid ARMs, the majority of HARP 2.0 applicants are counting on conforming rates remaining low as they anticipate the start of the program–lenders can begin accepting applications on Dec. 1. However, it must be noted that lenders won’t begin accepting applications from the most underwater borrowers until sometime in early 2012.
“That mortgage rates remain low and steady during the early months of HARP 2.0 is key,” explains HSH.com VP Keith Gumbinger. “The expanded program desperately needs some early successes so that borrowers, both new homeowners and especially those who failed to previously get HARP refinances, are encouraged to come try to get the payment relief for which they have been waiting.
“With the economy gently improving, there is some risk of rising interest rates between now and then. That said, if rates should move gently upward, the value of refinancing would still be intact, but any serious push higher would put folks back on the sidelines.”
Homebuyers need low mortgage rates
As we wind down 2011 and look forward 2012, it’s not just refinancers that are counting on steady-to-falling mortgage rates–homebuyers need them too. The idea of rising rates putting some potential buyers back on the sidelines is a real concern given the current state of the housing market.
The inbound flow of funds to safe-haven investments (U.S. Treasuries) plus the Federal Reserve’s Operation Twist program is helping to keep the lid on mortgage rate movements, explains Gumbinger in our latest Market Trends newsletter. The low and stable rate environment is important to potential HARP borrowers, as noted above, but may actually matter more to potential homebuyers. Since homebuying can take months of planning and executing, those looking to purchase in the spring have likely begin getting their ducks in a row. And while not necessarily derailed by a flare in interest rates, homebuying certainly isn’t much enhanced by it, either.
We don’t expect much change in mortgage interest rates this week, just a wobble one way or the other–that is, just about the same as last week.