Record lows, thanks to economy, Sandy and ‘cliff’by Keith Gumbinger
Below is an excerpt from the latest Market Trends newsletter, HSH.com’s weekly look at how the economy influenced mortgage rates and the real estate market. Sign up and receive the newsletter Friday night in your inbox.
While not really due to a perfect storm, mortgage rates trekked to new lows this week. The bright noisiness of the election now faded, the reality of the economic climate here and abroad continues to sap enthusiasm from the stock market, and that has pushed money back into Treasury bonds. The influential 10-year Treasury stood at a yield of 1.86% on October 25; it closed Thursday at 1.58%, and that has helped push mortgage rates back down to record lows.
While FHA-backed mortgages continue to be an important component of the mortgage market, the self-insuring pool which backs lenders against loss has been on the brink of insolvency for several years, with reserves against loss falling well below required levels. This will eventually translate into higher insurance premiums, larger down payments, higher credit scores or other changes to help shore up the wobbly finances of the program.
Mortgage rates decline to new lows
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 last week by five basis points (0.05 percent) to 3.63 percent, a new record low.
Meanwhile, the FRMI’s 15-year companion moved lower by another three basis points (.03 percent) to slip to 2.96 percent, falling further below the 3 percent mark after cracking it for the first time just a week ago.
Despite the FHA’s new troubles, FHA-backed 30-year FRMs eased by four hundredths of a percentage point, as the most viable option for credit- or equity-impaired borrowers saw its average slip to 3.29 percent.
The overall average rate for 5/1 Hybrid ARMs shed four basis points, easing to 2.68 percent, a new low water mark for the most popular kind of ARM.
Mortgage applications kick up
After a five-week slide, applications for mortgages picked up again during the week ending November 9. With the continued decline of rates to new lows this week, coupled with some urgency to get a deal in place before the onrushing holidays consume every last available minute of time, we’ll expect to see another bounce higher for applications.
Mortgage rates could continue to decline
We think the holiday-shortened week we’ll enjoy next week will see mortgage rates holding in new low territory. Stability seems the most likely path for next week, with the averages perhaps shedding a couple more basis points.