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July 22nd, 2013

Mortgage rates declined last week—here’s why

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

Treasury Dollar BillAs we expected, mortgage rates eased a little last week. After a period of shock and disbelief, it would appear that the market has become resigned to the fact that the Fed will eventually begin tapering purchases of Mortgage-Backed Securities and Treasury Bonds.

Fed continues to rattle the markets

However, the more concrete deadlines offered by Fed Chairman Bernanke just a few short weeks ago–all predicated on the Fed’s forecasts for growth, employment and inflation being realized–seem to have become a little fuzzier of late. Milestones for unemployment and inflation aside, Mr. Bernanke said as much in testimony before Congress last week.

“We will be waiting to see if the movement in mortgage rates has any material effect on housing,” Bernanke said. “If we think the mortgage rate increases are thwarting the progress we will have to take additional action.”

It will be interesting to see what the Fed considers “material effect on housing,” but we will surely know in the weeks ahead.

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 10 basis points (0.10 percent) to 4.60 percent, taking back two-thirds of the previous week’s rise.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) fell by nine basis points (0.09 percent), landing at 3.68 percent for the week ending July 19.

FHA-backed 30-year fixed-rate mortgages featured a sizable decline of 16 basis points, falling back to 4.22 percent, while the overall 5/1 Hybrid ARM completely reversed the rise of twelve one-hundredths of a percentage point (0.12%) for the week ending July 12 to return to an average 3.35 percent.

Why mortgage rates fell last week

Mortgage rates eased a little last week due to the market’s growing comfort with the Fed’s plans, but perhaps more so due to an economic and inflation climate which suggests that the tapering may both start later and last longer than the initial indication from the Fed might have suggested.

Mr. Bernanke made it very clear again last week that a highly accommodative monetary policy would remain in place for a long while, QE or no QE.

Given the present course of the economy, and even if diminished, we seem likely to have these programs in place for a while yet to come. In a strange way, that’s actually unfortunate.

This week…

There is lots of fresh data out this week to chew on, including new and existing home sales for June, the Chicago Fed’s National Activity Index and Consumer Sentiment. A hunch says that mortgage rates soften up a little bit more, with a decline of perhaps another handful of basis points by the end of this week.

For a longer-range outlook for mortgage rates and the economy, one which will take you up until early August, have a look at our new Two-Month Forecast for mortgage rates.

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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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