Mortgage rates down last week, expect big rise this weekby Tim Manni
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.
For a brief moment, nervousness about Eurozone finances and the spending sequester and impending debt ceiling were pushing money out of stocks and into bonds, driving mortgage rates back down. That came to an end last week when fairly solid economic news reignited stock markets, with the Dow Jones Industrial Average returning to record high territory. The shift in investor fancy caused a rise in the influential 10-year Treasury, which moved strongly upward as the week progressed.
Mortgage rates fell last week
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 a single basis point (0.01 percent) to 3.79 percent, its best showing since late January.
The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) also slid a lone basis point (0.01 percent) to drop back to 3.04 percent for the week.
FHA-backed 30-year FRMs doubled the fixed-rate decline with a two basis point fall, landing at an average rate of 3.37 percent. Meanwhile, the overall average rate for 5/1 Hybrid ARMs fell by another two hundredths of a percentage point, enough to wander further into record low territory with an average of 2.65 percent.
When can we expect Fed programs to end?
The Federal Reserve’s latest survey of regional economic conditions also added some cheer last week. The Beige Book (so named for the color of its cover) found that “economic activity generally expanded at a modest to moderate pace” in the six week period which ended on Feb. 22. Manufacturing, consumer spending, residential real estate markets and labor markets all sported some improvement, if in a mixed fashion. The recovery does seem to be firming and mostly expanding and gives the Fed additional material to justify that its unconventional monetary policy tools are working as intended and should continue for a while.
How long a period is constituted “a while” is a matter of speculation. The Fed has some stated goals–6.5 percent unemployment, 2.5 percent inflation–which, once attained, would signal that the economy might be able to stand higher short-term interest rates.
However, it is a more pressing and valid concern for markets that the extraordinary programs of buying up Treasury and mortgage bonds will be trimmed or eliminated long before those are reached. These programs affect long-term interest rates in general and mortgage rates specifically, and some speculation exists that these programs may be dialed back as early as mid-year. From our perspective, this is of course a possibility, but there is a lot of economic ground to cover in just a few months’ time for that to occur.
Higher mortgage rates are on their way
A 10-year Treasury which ran from a yield of 1.88 percent on Monday to 2.05 percent at the close on Friday (last week) presages a leap in mortgage rates this week of a tenth-percentage point, if not more. We’ll return to the highest rates of 2013–and probably the last six months–by early this week.
If goes without saying that with every firmer economic report that a return to the 60-plus-year lows of mortgage rates in early December are becoming increasingly unlikely.