Is the rise in mortgage rates finished?

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.

As of last week, mortgage rates maintained an upward trend for the sixth consecutive week, but the surge in rates–sparked by minutes from the Federal Reserve meeting, subsequent comments by Fed officials and moderate economic data–thankfully appears to be slowing.

Have mortgage rates risen too much?

From our perspective, mortgage and other interest rates have probably overshot the mark, at least based upon the economic and inflation climate in which the increases have occurred.

It is fairly commonplace for rates to drift downward but spike upward, which they have, only to later settle back somewhat. Given the state of underlying interest rates as the week ending June 14 came to a close, and dependent upon both a continuation of modest-to-moderate economic data and some soothing words from the Federal Reserve, mortgage rates may now have some space to fall. This expectation may be perhaps a little hopeful, but by no means unlikely.

Mortgage rates rose by less last week’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, jumbos) lifted by another five basis points (0.05 percent) to 4.15 percent, the smallest move of the recent uptrend.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming, jumbos) added a like amount to its average, rising by five basis points (0.05 percent) to 3.33 percent for the week.

FHA-backed 30-year fixed-rate mortgages added just three basis points to move to an average rate of 3.77 percent, while the overall 5/1 Hybrid ARM moved upward by eight hundredths of a percentage point (0.08 percent) to 2.85 percent for the week ending June 14.

Four percent rates: Not the end of the world

When rates were falling and first approaching the 4 percent mark, there were throngs of cheering crowds ecstatic about the chance to borrow at multi-generational-low mortgage rates, and with good reason. Now that we have moved back to the 4 percent level, there should still be cheering, but instead there is some concern being expressed about damage to the housing market.

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Despite recent increases, mortgage rates remain low by any stretch of the imagination, well below both five-year and 10-year average rates–and more than a full percentage point below the non-Fed-manipulated weekly low of 5.24 percent for the conforming 30-year fixed-rate mortgage rates set back in June 2003. Mortgage costs have increased from recent bottoms–not a welcome happenstance, by any means–but still remain considerably below both the intermediate and longer run norms.

Mortgage rates should fall this week

It is always dicey to forecast mortgage and interest rates during the week of a Fed meeting, so with fingers crossed, and based upon how the markets closed last week, we think there’s a good chance that rates will fall by a few basis points (possibly more) by the time we get to the end of this week.

HSH Associates Financial News Blog

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