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March 19th, 2012

March mortgage madness: Mortgage rates on the rise

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PercentThe Federal Reserve acknowledged last week what we’ve been championing for months: The economy is getting better.

While their assessment suggests that the growth needles have moved by just a touch, from “modest” to “moderate,” it was enough to spark a strong move in interest rates, and underlying Treasury yields moved considerably higher by last week’s end.

Mortgage rates of course will follow, but perhaps not to the same degree; rather the distance between benchmark Treasuries and mortgage rates (the ”spread”) will probably compress somewhat.

Mortgage rates rose last week

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 jumbos) rose by just two basis points for the week and now stands at an average 4.24 percent.

The FRMI’s 15-year companion rose by just one basis point (.01 percent) to finish at an average 3.50 percent.

Important to homebuyers and low-equity-stake refinancers, FHA-backed 30-year mortgages rose just three basis points, climbing to 3.85 percent, while the overall average for 5/1 Hybrid ARMs increased by four hundredths of a percentage point, climbing back to 3.03 percent for the survey period.

Why mortgage rates rose

A reasonable proxy for the movement of mortgage rates–the yield on the 10-year Treasury–has hung at or below the 2 percent level for much of this year with a few exceptions. Those yields flared higher, rising nearly a third of a percentage point between Wednesday and Friday of last week.

If unwelcome, the increase in mortgage rates should be minor, and no one should be surprised. A better economic climate almost always brings higher rates, and a lessening of the troubles in Europe from massive central bank assistance adds to the movement of money from safe havens to more risky assets, driving rates upward.

There may also have been some lift from the news that a sizable majority of large banks passed their “stress tests” last week, buttressing the belief that things are getting better. In the statement which accompanied the close of their meeting, the Fed reiterated its present commitment to keep rates low until at least late 2014. We may start to see that time frame moved up if the more solid performance of the economy persists, but probably not for at least two meetings, if not more.

Underwater? New calculators tell you when you won’t be

Obviously, part of that depression is homeowners who owe more on their mortgages than their homes are presently worth. Even with HARP 2.0 finally getting underway, finally allowing some underwater homeowners a chance to refinance, the fact remains that these homeowners will be underwater for years to come.

The question, then, is “until when?” That’s exactly what HSH.com’s new KnowEquity When Underwater Mortgage Calculator will reveal. Homeowners can plug in their original mortgage amount and start date, term and rate, and add the present value of their home. The calculator will then reveal how far underwater they are (both dollar amount and percentage) and provide the date when they will be back to a 0 percent equity level. KnowEquity When also allows the homeowner to add prepayments and specify price appreciation to see how this shortens the time to get back in the black.

A separate calculator, KnowEquity How, asks for the same information, but instead has the homeowner provide a desired date in the future when they want or need to have a specific level of equity–from 0, 10 or 20 percent or even the full original purchase price of their home–and then returns the combination of amortization, prepayment and market price appreciation needed to hit that goal.

What’s in store this week?

After a busy week last week, there’s a smaller bit of new economic data due out this week. That said, it’s housing, housing, housing. A fresh report from the National Association of Homebuilders is due, as are Housing Starts and Building Permits and reports covering sales of both existing and new homes. We should get a solid sense of whether recent gains (at least through February) are setting the stage for a spring homebuying season. We believe that perhaps the first one in a number of years is likely to come, but we have been generally more optimistic than some.

Higher mortgage rates will greet those reports. We saw a little bump last week, but there should be some more yet to show as we roll through this week. Best to figure on perhaps an additional eight to 10 basis point rise in the average by the time the week is out.

Be sure to read our latest Market Trends newsletter in its entirety. Sign up and receive the newsletter in your email Friday night.

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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.

Our bloggers:

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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