All mortgage rates set new record lowby Keith Gumbinger
Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox:
Persistently low mortgage rates are helping the housing market to come back to life, but it would be unreasonable to expect that the upward journey would have no setbacks. Given fears of “shadow inventory” (millions of properties looming over the market), it is a strange happenstance that a lack of inventory may be throttling home sales in some areas, while also serving to lift home prices. It is just the latest twist in the saga of mortgage and housing markets.
HSH.com’s broad-market mortgage tracker—our weekly Fixed-Rate Mortgage Indicator (FRMI)—revealed that the overall average rate for 30-year fixed-rate mortgages declined by another five basis points (.05 percent), easing to a new record low of 3.86 percent for the week ending July 20.
The FRMI’s 15-year companion managed a decline of six basis points, landing at 3.14 percent, and moving deeper into new record territory.
Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages shed another four basis points to slide to an incredible 3.48 percent, while the overall average rate for 5/1 Hybrid ARMs finished at 2.81 percent, a decline of five basis points (.05%) and enough to set a new low for the most popular kind of ARM.
Mortgage rates should keep on falling
Homebuying is unlikely to improve quickly until the economy and especially the job market improves. According to the Fed’s latest survey of regional economic conditions (aka “the Beige Book), the economy is growing at a “modest to moderate page” in June and early July. Even though the report characterized housing markets as “largely positive” in all districts, we will need much stronger growth–something much greater than the present estimated 1.4 percent GDP–to continue to move the needle.
In the context of a slowing (or at least slower) economy, mortgage rates continue their drift downward. From a peak in late March, mortgage rates have shed about a half-percentage point, much to the benefit of refinancers and homebuyers. However, the decline in mortgage rates has clearly come as the result of an economy which lost momentum from the Eurozone crisis and investors seeking a return of their capital rather than a return on it.
At the moment, the economy needs more risk-taking, more speculation to obtain hoped-for future gains, more hiring and more opportunities to move forward. Instead, money continues to run and hide from risk, and the recovery and expansion continues to the threatened by it.
A lesser calendar of economic news is due this week, including our first look at second quarter GDP. It doesn’t seem like there will be much to move mortgage markets to any great degree, and the couple-of-basis-point weekly decline we’ve become accustomed to will probably remain for this week.