Despite increases, mortgage rates remain at ‘very low levels’

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

Mortgage Rate ConceptAs the economy oscillates, so go mortgage rates. A spate of poor economic news pushes mortgage rate down; optimism about the economy lifts them again.

The Fed even remotely considering expanding or extending QE3 presses them lower while remarks and expectations that the program will end sooner kicks mortgage rates higher.

Modest moves upward and downward happen with a regular frequency with little discernable direction or trend to be seen.

Around and round we go.

All we know for sure is that we remain fairly distant from the Fed’s goals of 6.5 percent unemployment in a context of stable prices at or around the Fed’s goal of 2 percent inflation.

Mortgage rates on the rise

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 jumbos) rose by eight basis points (0.08 percent) to 3.76 percent.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) managed a seven basis point lift (0.07 percent) to 2.98 percent for the week ending May 17.

FHA-backed 30-year fixed-rate mortgages followed along with another five basis point increase of their own, climbing to an average rate of 3.36 percent, while the most popular ARM–the 5/1 Hybrid–remained closest to its all-time record lows with just another two hundredths of a percentage point (0.02 percent) upward bump to 2.61 percent for the week.

Stocks pushing rates higher

There was precious little good economic news to be seen last week, but interest rates firmed anyway, as stock markets continue to find reasons to push higher.

Collectively, what do we have?

Low and falling inflation, a soft and perhaps weakening manufacturing sector, a labor market which seems to be having as many setbacks as advances, and a housing market which is better than a few years ago but a long way still from full health. Also, we have a Fed which is committed to keeping its foot on the throttle, at least for a while yet, and an economy which is grinding its way slowly forward.

What will happen to mortgage rates?

As long as enthusiasm for stocks persists, we are likely to continue to see mortgage rates holding above record or even recent lows. However, until there are clear signs that the economy is accelerating, unemployment is steadily falling or prices are regularly rising there is little reason to expect that the Fed will change course anytime soon. Collectively, this should keep us tethered at very low levels even as we experience fits and starts of good and bad news driving rates up and down. We had a run up in mortgage rates in the mid and late winter and a mostly downward run since then. For the moment, we are headed back upward, but this up cycle may not even reach the 2013 highs of March.

That said, we do expect another 3 to 4 basis point rise in mortgage rates this week.


HSH Associates Financial News Blog

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