April 2nd, 2012

Mortgage rates falling once more



int rate QMarkAs expected, mortgage rates settled back a little bit last week after an upward move totaling 15 basis points over the last two weeks. General upward momentum in the economy fostered that rise, but at least a few doubts about the economy’s forward momentum seem to have crept back in.

Although rates have bumped a little off their historic bottoms of February, the modest move upward should not create any additional serious turbulence for the housing market. Even in a worst-case scenario, an eighth-percentage point increase in a loan’s interest rate isn’t sufficient to ruin most deals, and that slight increase could be “bought down” through the payment of about a half-point fee, perhaps less.

How that might change the benefits of a refinance (or even a purchase) transaction can be discovered by using our Tri-Refi Calculator.

Mortgage rates fell last week’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages eased by four basis points (0.04 percent) for the week ending March 30, and now stands at an average 4.33 percent.

The FRMI’s 15-year companion slipped by just two basis points (.02 percent) to finish at an average 3.56 percent.

Important to homebuyers and low-equity-stake refinancers, FHA-backed 30-year mortgages held steady at 3.91 percent, while the overall average for 5/1 Hybrid ARMs retreated by five hundredths of a percentage point, falling back to 3.07 percent for the survey period.

Economy suggests lower rates

While there is no hard downshift in economic activity, the accumulation of data from February and what has become available for March does suggest a leveling off of activity, with perhaps a softer trend forming for the spring. Reassurance about the direction of interest rates from Fed Chairman Bernanke doesn’t hurt, either, in terms of trimming any upward pressure for rates.

Data out this week reinforced the notion that a cooler economic climate is forming. Claims for new unemployment benefits had moved downward in January, then again in early February but have since hovered in a range between 374,000 and 359,000 this month. With a week of reporting left to go for the month, it would appear overall that employment gains in March will be no better than February, and perhaps a touch worse, even. March’s employment report is due Friday, so we’ll find out soon enough.

We’ll need to wait another month to get a look at the Gross Domestic Product for the first quarter of 2012. We do know that the last quarter of 2011 held a 3 percent clip for GDP, but our early guess is that we’ve slipped a little from that pace. The economy’s so-called “potential” to grow without kicking off inflation is thought to be around 2.8 percent GDP, but we need considerably stronger growth than that for at least a while if we are to make a serious dent in the unemployment rate. Mr. Bernanke took pains to point this out in his recent commentary.

The Chicago Federal Reserve’s National Activity Index–a gauge which uses some 85 economic indicators to determine if the economy is growing faster or slower than its “potential”–came in at a slightly negative -0.09 for February, down from a relatively fast +0.33 in January. This would put GDP growth just south of 2.8 percent or so for the month. We have been on a downward trend since a 0.66 figure was posted in December, so we are now in a three-month slide.

A few regional evaluations of economic activity told much the same story.

Lower rates in store for next week

We don’t want to sound pessimistic; in fact, we’ve been more optimistic than most over the past six months or so, and were arguably among the first to acknowledge the warming trend in the economy. That said, there hasn’t been enough good news to suggest any kind of immediate breakout from the modest growth pattern we enjoyed in the fourth quarter of last year. It is true that at some point, even sustained 3 percent GDP readings or thereabouts will see the Federal Reserve express enough confidence to start raising rates, but we will need to put together a string of quarters of such growth before that happens.

For the moment, we’ve got a pile of first-week-of-the-month data out this week with which to contend. Collectively, we think that a flat to slightly weaker tone for the data seems likely, and that mortgage rates will shed perhaps a couple of basis points as a little doubt about the recovery’s strength creeps in.

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About the HSH Blog'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 and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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