July 16th, 2012

Downward spiral for mortgage rates continues



Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox: Flipping Calendar

The Federal Reserve seems to have no imminent plans to again try to rescue the economy. Even if they were to move immediately, any beneficial effect would take time to be fully realized. Low interest rates are of course already in place, and it is believed than any Fed move would come in the form of additional quantitative easing, where the Fed buys up debt in order to lower interest rates. There is at present no indication that any such action will come, so we slog along in an economic mire. This alone is enough to keep mortgage rates on a easing path, Fed action or not.

Mortgage rates retreat to new lows, 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 declined by another five basis points (.05%), easing to a new record low of 3.91%. The FRMI’s 15-year companion also managed a decline of five basis points, landing at 3.20%, moving into new record territory by four basis points. Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages shed another six basis points to slide to an incredible 3.52%, while the overall average rate for 5/1 Hybrid ARMs finished at 2.86%, a decline of a just 0.02% but enough to set a new low for this product.

Fed concerned, but would even lower rates help?

Minutes of the Fed’s last meeting were released this week. No change to policy came as a result of the June get-together, although Operation Twist was extended to the end of 2012. It would appear that economic conditions have deteriorated since then, and should this pattern persist, the Fed might be forced to make a move. That said, it is unclear if even lower interest rates than those in place today will be sufficient to goose the economy. At this point, it may be more a case of access to money than the price of it.

Job market may have improved a little

Some good but less-than-clear news was seen in the unemployment claims data for the week ending July 7. Just 350,000 new applications for benefits were filed during that period, the lowest figure in months. While this came during a holiday week at a time of year when seasonal adjustments can skew the number, the prior week was 376,000 claims after revision, and that too was lower than the recent pattern. It is a hopeful if untrustworthy sign that the springtime deterioration in labor market may have come to an end. The next few weekly reports will bear this out or refute it.

Mortgage rates may slip further amid slackening demand

Some of the slippage in mortgage rates may be coming from easing demand. Combined mortgage applications for both purchase and refinance have been sliding for the past four weeks, with refinance applications surprisingly lower despite record-low rates. There is probably some seasonal variation to blame, as school let out and vacations beckoned; a homeowner’s mortgage will still be there when they return… and rates may be even more favorable, to boot.

For more context and more of the economics that affect homebuyers, refinancers and mortgage rates and markets, read the complete MarketTrends. You can also subscribe for e-mail delivery of the’s authoritative newsletter on Friday evening at no cost.

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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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