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February 19th, 2013

Low mortgage rates have plenty of help

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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 inbox Friday evening.

int rate QMarkA light calendar of new economic news gave investors time to ponder the state of affairs, allowing interest rates to wander fairly aimlessly for another week. The bump in rates may not be over, not as long as a firming economy continues to show itself, but there remain plenty of headwinds to stronger growth.

Financial panic in European markets helped to lower American interest and mortgage rates at times last year. Panic there has been largely replaced by good old fashioned recession, and a deepening one, at that.

Perhaps not enough to induce panic, but maybe enough to give some investors pause or foster a shift of funds back from stocks into bonds, should it persist. Should it occur, that would tend to lower interest rates here; so far, it seems to have served to temper both enthusiasm and a rise in rates.

Mortgage rates move lower

HSH.com’s broad-market mortgage tracker–our weekly Fixed-Rate Mortgage Indicator–found that the overall average rate for 30-year fixed-rate mortgages (conforming, non-conforming and jumbo) slipped by two basis points (0.02 percent) to 3.82 percent for the week ending Feb.15.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo), doubled that decline, sliding four basis points (0.04 percent) to 3.06 percent for the week.

FHA-backed 30-year fixed-rate mortgages remained unchanged last week, holding steady at a fantastic rate of 3.41 percent, as inexpensive mortgage money remains readily available to credit- or equity-impaired borrowers. The overall average rate for 5/1 Hybrid ARMs retreated to familiar territory, easing by five hundredths of one percent to 2.71 percent.

What’s influencing low mortgage rates?

In addition to panicked investors plowing money into safe havens, Federal Reserve policies helped interest rates to hit record lows a number of times in 2012. The Fed has recently embarked on both a Treasury and MBS buying spree to the tune of some $85 billion each month. At times, such programs can have “unintended consequences”; strong action by the Fed leads the market to believe that real economic improvement is coming sooner than later, and interest rates rise as a result.

That was generally the case when QE2 was announced, but rates began to fade when optimism about a quick recovery did. It is possible that this is the case now, as well; investors have been expressing more than mild optimism over the past five or six weeks, driving stocks higher and dragging yields up along with them.

Higher rates aren’t far behind

Whether the market’s collective enthusiasm is justified or not we’ll know soon enough. Given the Eurozone trouble and only mild expansion here at best (we are coming off a -0.1 percent estimate for GDP for 4Q12, remember), there’s a strong possibility that mortgage rates will retrace some of their quarter-point increase in the period just ahead.

Is the economy really getting better… or worse… or doing a little of both? We are of the mind that it is a little of both. Times remain difficult, even if we are no longer at the emergency or crisis stage, and mortgage rates (and bond yields) seem to be at over-optimistic levels at the moment.

Mortgage rates will probably find reasons to hold at these levels for another week with a slight upward bias.

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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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