Mortgage rates trend upward after ‘cliff’ dealby Tim Manni
Below is an excerpt from our latest Market Trends newsletter. Each week, Keith Gumbinger, vice president of HSH.com, discusses the economic factors that influenced mortgage rates during the week.
The first week of the new year brought perhaps half a deal on resolving the “fiscal cliff,” but many hard choices and fights are yet to come.
Stock markets cheered the news of a deal, and if yields are any indication, money that had been parked in Treasuries to get out of the way of the cliff deadline powered out of those safe havens into stocks, lifting interest rates in their wake.
Fixed mortgage rates especially track Treasury yields, and are firming at the moment. Any unwanted rise in yields and rates, of course, can now be offset by the purchasing power of the Federal Reserve, since Operation Twist ended on Monday, and the latest QE kicked in with the turn of the calendar. Some $85 billion per month of MBS and Treasuries will be bought to help keep interest rates low and stable for the foreseeable future.
Mortgage rates on the rise
HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator (FRMI)–found that the overall average rate for 30-year fixed-rate mortgages rose by three basis points (0.03 percent) to 3.68 percent, returning to levels last seen in early November (although only a tenth-percentage point above historic lows).
The FRMI’s 15-year companion increased by a single basis point, holding nearly steady with an average rate of 2.97 percent for the week ending Jan. 4.
FHA-backed 30-year FRMs gained by four hundredths of a percentage point (.04 percent), climbing to a nine-week high of 3.32 percent, with inexpensive mortgage money remaining available to credit- or equity-impaired borrowers. Also, the overall average rate for 5/1 Hybrid ARMs declined by a single basis point, retreating back to 3.70 percent.
Homeowners benefit after ‘cliff’ deal
The fiscal deal in place did accomplish a few items of value to the nation’s homeowners, though. The Debt Forgiveness Act of 2007 was extended for another year, so homeowners lucky enough to secure a loan modification which included a principal reduction, short-sale or an underwater deed-in-lieu transaction won’t find the tax man looking for a non-existent cut of the “gift” from lender to borrower. As the short-sale issue is likely to be with us for years to come, the break should probably be permanently extended.
Private Mortgage Insurance is once again tax-deductible, which is a good thing since the cost of insuring loans with less than a 20 percent equity stake has risen considerably. More increases, notably in the FHA program, can be expected as 2013 rolls forward. Deductibility for MI premiums had been an on-again, off-again concept the past couple of years and still has not been made permanent.
The mortgage interest deduction remained untouched, for now. At some point, it is reasonable to expect that changes will come to the present $1 million limit in some form or another. Our guess is that some link to the conforming loan limit is what will come. For now, no change.
Mortgage-rate increase should be slight
Mortgage rates are being lifted by what is arguably more optimism than is warranted at the moment, given the issues at hand, but the momentum seems to be slightly upward at present.
That is expected to continue into this week. Rates are likely to see another mild rise, numbering in perhaps a handful of basis points, but there is no reason at present to expect any huge change.