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April 16th, 2012

Mortgage rates fall back to record lows

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Below is an excerpt from the latest Market Trends newsletter, a weekly examination of what moved mortgage rates the week prior:

As expected, mortgage rates retreated further from their recent upward spurt. An accumulation of economic optimism prompted a rise in mortgage rates, but that enthusiasm has since moderated among plenty of mediocre economic data.

According to the Federal Reserve, a “modest to moderate” economic expansion is occurring; that pace is unlikely to support conditions which can sustain higher interest rates.

Small flares in interest rates as we move forward are to be expected, though. At some point, perhaps later this year, a bump higher will hold, becoming a new plateau for rates, then another, and so on. For now, the first one in some time has passed.

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) slumped by 12 basis points (0.12 percent) for the week ending April 13, and now stands at an average 4.18 percent, matching its record low.

4.16.12 CJSpreads041212

The FRMI’s 15-year companion slipped by another eight basis points (.08 percent) to set a new average low of 3.42 percent.

Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages dropped by another four basis points to 3.82 percent, while the overall average for 5/1 Hybrid ARMs retreated by six hundredths of a percentage point, falling back to 2.99 percent for the survey period.

Economic mood improves

The Federal Reserve’s survey of regional economic conditions (called the “Beige Book” for the color of its cover) reported those “modest to moderate” conditions. While not exactly upbeat, the report imbued a general sense that the economy is on a much more solid stance than seen at any time over the past few years, with even residential real estate activity described as “improved in most districts.”

If the economy is gaining strength, the Federal Reserve will feel much less compelled to begin any new programs to support it. The present “Operation Twist” program expires in June, and as of yet there is no indication from the Fed that it would be extended, expanded or replaced with something else. The “will they or won’t they?” question is one of the factors which prompted the recent mood swing for interest rates.

Whether they will or won’t remains to be seen, as the economy may or may not continue to need extraordinary support to continue to grow. For the moment, the question remains unanswered, and probably will for some weeks yet.

Mortgage rates prove volatile

Mortgage rates moved lower last week, returning to about where they were before a run-up of a few weeks moved them to 2012 highs.

In addition to a flatter pattern in the domestic economy, more troubles in the Eurozone and reports that the Chinese economy had its weakest growth in three years served to get us right back where we started. In some ways, the short-lived bounce higher is an important lesson in that interest rates can and do move both up and down. Typically, rates move upward much more quickly than they decline, often surprising unsuspecting borrowers accustomed to low and falling rates.

Mortgage rates could rise by week’s end

Now that we’re back at bottom, it’s arguably a good time to prepare for the inevitable next bounce upward. From here, as it did before, that will require an accumulation of solid economic reports, perhaps topped off by an outsized gain in new hiring.

At present, that seems unlikely to happen in April, but some encouraging news about housing this week would be a first step, should it come. Reports covering builder sentiment, housing starts and permits, and existing home sales are all due, as well as looks at consumer spending and a forward-looking economic indicator. Our bet is that March reports will report fair activity, at best, and that the warm winter stole some activity from the month, leaving us rather flat overall.

With temperate economic news expected, we think the fall in mortgage rates has completed, and might even reverse a little by the end of this week. We’ll figure on a couple of basis point increase in the overall 30-year FRM by the time Friday rolls around.

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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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