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February 4th, 2013

Good news to blame for higher rates

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Below is an excerpt from of our latest Market Trends newsletter, a weekly examination of the economic conditions that influenced mortgage rates. Sign up to receive the Market Trends in your email Friday evening.

PercentModerately good economic news continues to press mortgage rates higher, as investors both here and around the world move their money from safe-haven investments in bonds and into riskier assets such as equities. Major stock market indexes across the globe put in some of their best January gains in years, all coming at the expense of bonds, whose yields rise as investor demand wanes.

Even with its massive balance sheet expansion, the Federal Reserve’s program to keep interest and mortgage rates low constitutes only a portion of the market, so there are limits to the Fed’s ability to maintain rates at rock bottom levels.

Mortgage rates rising

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 (conforming, non-conforming and jumbo) climbed another 10 basis points (0.10 percent) to 3.83 percent, its highest level since September 14, 2012.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) increased by another eight basis points, landing at 3.10 percent for the week.

FHA-backed 30-year fixed-rate mortgages rose by six hundredths of a percentage point (0.06 percent), moving up to 3.42 percent, as inexpensive mortgage money remains readily available to credit- or equity-impaired borrowers. For a change, the overall average rate for 5/1 Hybrid ARMs wasn’t immune to the trend, rising by five basis points to 2.76 percent.

Little concern over rise in rates

There doesn’t appear to be much grave concern over the rise in mortgage rates. That’s good, since there shouldn’t be. Interest rates rise and fall all the time as investors wander from one end of the see-saw to the other.

If the typical pattern plays out, the fairly mad rush to stocks in January will peter out, some funds will go back to be parked in bonds, and interest rates will ease again. This is normal, even welcome behavior from a broad standpoint, with these forays into risk much healthier expressions than fearfully stashing money in a virtual mattress. It also should be noted that rising rates can also temper demands for funds (mortgages especially) and as pipelines thin out, lenders tend to price more aggressively to attract business again.

Borrowers should always keep in mind that the most dire of economic situations brings the lowest interest rates, and if we are enjoying even the perception of better growth, rates should be expected to move off bottoms as they have. In the present situation, they have moved upward mildly, but not enough yet to crash the refinance market nor even scratch the purchase market.

They may have a little lift yet to go this week, but it seems to us that we may just hold pretty flat overall.

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About the HSH Blog

HSH.com'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 HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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