‘Highest mortgage rates in a year’s time’

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.

money wrenchIf anything, the waters became even more muddied last week as it pertains to any impending change in the Fed’s QE policies. The latest data didn’t suggest enough strength as to tilt the scale toward a hastened exit, nor was there enough weakness to swell hopes that the Fed’s process of buying mortgage-backed securities and Treasuries will continue for a longer stretch yet.

While not exactly limbo, it does make it more difficult to know what to expect. The Fed next meets to discuss policy on June 18 and 19, and will release an update to their own economic projections at that time. Until then, the markets will continue to ruminate over where we go from here, and how quickly.

Mortgage rates rising

This will occur in the context of the highest mortgage rates in a years’ time. Despite remaining well below historic norms and “natural” record lows (those achieved pre-Fed market manipulations of the last five years), at least a few folks have expressed concerns about mortgage rates–especially conforming 30-year fixed rates–reaching a 4 percent level.

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) powered ahead by another nine basis points (0.09 percent) to 4.10 percent a rise of nearly a half-percentage point in five weeks’ time.

At the same time, the overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) bounded upward by another seven basis points (0.07 percent) rise to 3.28 percent for the week.

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FHA-backed 30-year fixed-rate mortgages added another 10 basis points to jump to an average rate of 3.74 percent, while the most popular ARM–the 5/1 Hybrid–moved the least amount of the bunch, with just a seven hundredths of a percentage point (0.07 percent) upward bump to 2.77 percent for the week ending June 7.

Fed sees little economic growth

There is a sort of balance in the latest economic data, leaving little suggestion that there is any upward trend in growth forming. In fact, there may have been sufficient deceleration of late to lean slightly more in favor of keeping QE around for a while longer yet. The Fed’s own regional survey of economic conditions covering the six weeks ending May 24 said as much. The “modest to moderate” overall review of the expansion in the latest report was a notch below the “moderate growth” reported in the prior survey to April 5.

Mortgage rates in ‘former-record-low territory’

So here we are, with mortgage rates no longer hanging very near record lows, but instead holding in former-record-low territory. The fact is that the economic news out last week wasn’t poor enough to help rates decline, nor was it strong enough to suggest that the Fed will go away quickly, or even soon.

The nation’s rate of unemployment ticked back up by a tenth-percentage point, to 7.6%, but that was due not to more firings, but rather to an increase in the size of the nation’s workforce, as the labor force participation rate nudged off the recession bottom of 63.3% (to all of 63.4%) for the month.

It is unlikely that any clarity will come as a result of new data out this week, and mortgage rates seem likely to be firm with perhaps an upward bias until the Fed chimes in a week from Wednesday. For mortgage rates, the rise seems to have slowed, if not stopped, and we expect our Fixed-Rate Mortgage Indicator to tick up by perhaps four basis points by the time the week is through.

HSH Associates Financial News Blog

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