The economy sends mortgage rates to new record lowby Tim Manni
The economic seesaw brought mortgage rates down to new record lows last week.
Two weeks ago, mortgage rates flared higher thanks to a warmer set of economic data. Last week, that increase “was cut off at the knees” by a softer-than-expected fourth quarter GDP report and a Federal Reserve outlook that left a lot to be desired, explained Keith Gumbinger, vice president of HSH.com, in the latest Market Trends newsletter.
The Fed not only pushed back their expectation for when interest rates will rise, they also indicated that more mortgage or bond-buying programs might come into play this year.
The result: Mortgage rates fell to new record lows
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) declined by 10 basis points (.10 percent) from the previous week, sliding to an average 4.18 percent, a new record low.
The FRMI’s 15-year companion shed nine basis points (.09 percent) to finish the weekly survey at an average 3.46 percent, also a new bottom.
FHA-backed 30-year mortgages declined by just three hundredths of a percentage point to 3.84 percent, while the overall average for 5/1 Hybrid ARMs decreased by seven basis points to crack the 3 percent mark and end the week at 2.99 percent.
Conforming 30-year fixed-rate mortgages matched their previous low of 4.01 percent, but jumbo 30-year fixed-rate mortgages marched into new record low territory with an eleven basis point drop to 4.49 percent.
The availability of low mortgage rates hasn’t been the problem in recent years. It has been the access to these record-low rates. The latest opinion survey of senior loan officers conducted by the Federal Reserve found that for prime quality residential borrowers, conditions have eased slightly. “Since many of these loans follow Fannie/Freddie or FHA underwriting standards (which have not changed), we can only be left to conclude that the easing came in non-conforming (jumbos) and for products more likely to be kept in portfolio (ARMs). Any easing of standards would no doubt help the housing market,” wrote Gumbinger.
So what should we make of all this?
We have been firmly of the mind that the economy has been improving for months, and the data continues to bear this out. In “normal” times, an improving economy should send rates on the rise. “We are still very far from whatever might pass for normal these days, since the job market is still weak, inflation is happening at a measured (perhaps even declining) basis, and there are certainly still plenty of issues which might trip up the recovery,” explained Gumbinger.
“At present, no one knows, but at some point the markets may begin to express that a Fed committed to low rates for years to come is not in their best interests, and a change will come. Until then, rates will remain favorable.”
Record-low rates present incredible fiscal opportunities to borrowers, however, potential borrowers should keep in mind that the lowest interest rates usually accompany the bleakest of economic reports, and to the extent that the economy is strengthening, the likelihood of perpetual new “record lows” diminishes, explained Gumbinger.
We expect to see mortgage rates rise a little this week.