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April 9th, 2012

Lower mortgage rates should continue this week



Below is an excerpt from HSH.com’s latest Market Trends newsletter, written by Keith Gumbinger, vice president of HSH.com. The HSH Market Trends is published every Monday with the latest on the mortgage market. Want to read it as soon as it’s published on Friday? Sign up for a free email subscription!

int rate QMarkMortgage markets have shifted from winter tranquility to spring volatility. Mortgage rates rose recently as positive assessments of the economy became more frequent and reliable. Perhaps in response to that, Fed Chairman Bernanke took pains to note the still-considerable challenges which face the economy and the Fed’s low-rate stance, driving mortgage rates back downward.

Freshly-released minutes of the last Fed meeting reflected the stronger economy leading up to that point, at least partially quashing some hopes of a new Fed Quantitative Easing program. That pushed rates back up again. But deepening woes in Europe and a fairly weak March employment report has started to send them back down again.

We are likely to see more fits and starts for mortgage rates in the near future.

Mortgage rates fell 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) eased by three basis points (0.03 percent) for the week ending April 6, and now stands at an average 4.30 percent.

The FRMI’s 15-year companion slipped by another two basis points (.02 percent) to finish at an average of 3.54 percent.

Important to homebuyers and low-equity-stake refinancers, FHA-backed 30-year mortgages dropped by five basis points to 3.86 percent, while the overall average for 5/1 Hybrid ARMs retreated by two hundredths of a percentage point, falling back to 3.05 percent for the survey period.

Fed influencing mortgage rates

Minutes of the last Federal Reserve FOMC meeting were released last Tuesday. While the statement which accompanied the close of the meeting three weeks ago and subsequent testimony of Fed Chairman Bernanke both suggested that an economic climate which might require additional support was the most likely outcome for the period just ahead, the minutes themselves seemed to indicate otherwise.

In them, there was a much stronger assessment of the state of the economy, one where the Fed would be less inclined to start or expand programs designed to keep interest and mortgage rates low into the future. That caused an abrupt change in the market as stocks slumped and interest rates rose; they had been rising and falling somewhat, respectively, in the days prior to the release.

Economy showing mixed signals

Interest rates had been easing somewhat, as an accumulation of the most recent economic data pointed to an expansion with rather less upward momentum at the end of the first quarter than at the beginning of it. Those mixed signals continue to show in last week’s reports, too, reflecting an economy which is still growing but with somewhat less strength.

Hiring of the under- and unemployed is the key to broadening the recovery.

Over the last three months, a spate of hiring had pushed new job creation well over the 200,000 level, conducive to a recovery gathering steam. How disappointing, then, to find that just 120,000 new hires occurred in March, exactly one-half of February’s gain? This weaker-than-expected report was the perfect counterbalance to the FOMC “stronger” minutes, and underlying interest rates retreated.

Our general take of things is that we are in a flat period, nothing more. The news certainly isn’t gloomy, but perhaps less shiny than before. Overall, there are positive signs to observe, too, even if activity has backed off a little from earlier in the year.

Mortgage rates should fall some more

So the economy has leveled for the moment, and even might be exhibiting signs that it is not completely immune to the troubles abroad as well as here. It could be said that a little too much optimism formed too quickly, that markets got ahead of themselves or even that market players have been caught leaning one way or the other too strongly. Characterize it the way you like, but for the moment the flare in mortgage rates of a couple of weeks ago is over. Make no mistake about it, though, another will come before too long.

Rates moved a little lower last week, if unevenly so. We should begin this week on a downward note and will likely hold lower by week’s end. We expect a five or six basis point fall in mortgage rates by then, pushing us closer to recent lows than highs.

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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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