April 30th, 2012

Mortgage rates fall once again to record lows. Why?



Below is an excerpt from’s latest Market Trends newsletter, written by Keith Gumbinger, vice president of Sign up and receive the newsletter in your inbox Friday evening.

Whats Next 290By a whisker, mortgage rates eased to new record-low levels last week, as neither the economy nor the Federal Reserve gave any indication that there is a reason for them to rise at the moment.

The economic climate has turned considerably more mixed over the last two months, with rather more signs of deceleration than acceleration. It may be only a pause, but it is possible that modest growth may be all we can expect for a while to come yet. To be fair, the new record low for mortgage rates is just a single basis point lower than the old, and there was little move at all last week.

As they have been, rock-bottom mortgage rates continue to do what they can to support the housing industry and improve household finances, but there are limits to how much support they can provide.

Mortgage rates make history (once again)’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 two basis points (0.02 percent) for the week, and at 4.17 percent, now stands just a single tick below its record low.

The FRMI’s 15-year companion shed three basis points (.03 percent), also moving just below former record lows.

Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages dropped by another lone basis point to 3.80 percent, a fresh low-water mark, while the overall average for 5/1 Hybrid ARMs lost two hundredth of a percentage point, landing at an average 2.97 percent for the survey period, its lowest level ever.

Questions surround the Fed’s next move

The Federal Reserve Open Market Committee met last week to discuss the economy and decide whether any present policies should be changed. No changes were expected, and none came; the only new light shed as a result of the meeting is that at least two more Fed Governors moved up their forecasts of when the first changes to the Federal Funds rate will occur.

The Fed’s Operation Twist program comes to a close in just about nine weeks’ time, but there was nothing in the statement which closed the meeting (nor in Fed Chairman Bernanke’s subsequent press conference) to indicate that the program would be replaced, allowed to expire or extended, but only that the Fed stands ready to change policy if needed and as suggested by incoming data.

Housing remains weak

We know that sales of homes have been better this year than last. That said, they are still rather weak, and of late, have begun to soften up a little bit. This change may or may not be due to the unusually warm winter moving some purchases up to January and February, but there was some slowing seen in March.

Sales of new homes finished the month at an annualized pace of 328,000, down from an upwardly-revised 353,000 in February. With the April dip, we have settled back to about January levels, but the actual number of units built and ready for sale continued its steady decline. At 144,000 homes, it is the lowest level since records were kept, and represents a 5.3 month supply, a little tighter than what is considered normal.

What’s in store for this week?

The calendar turns to May tomorrow. As always, the first week of the month brings a slew of fresh data. Of note is a new Senior Loan Officer Opinion survey from the Fed, which will probably detail modestly easing lending conditions for businesses and possibly some in residential lending, too. Sales of new cars, the latest ISM indexes, income, spending and productivity reports all precede the employment report. For many of these, the April data seems likely to be just a little better than March was, but not enough to drive interest rates strongly in an upward direction. If the data is not much better (or not as good), some pressure on the Fed to “do something” is likely to start to grow.

Mortgage rates should be fairly flat again this week.

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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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