Mortgage rates fall to monthly lows

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.

falling ratesIn what turned out to be a busier-than-expected week for markets, mortgage rates found some space to fall, breaking a climb from record lows set back in December 2012.

Why did mortgage rates fall?

The proximate cause of the fall in rates was investor concern over elections in Italy, which served to add more uncertainty into the Eurozone financial mess. Fearing the worst, stocks sold off and money was again plowed into Treasuries for safe keeping, with the yield on the influential 10-year Treasury slipping by more than a tenth percentage point by Tuesday [Feb. 26] morning. Reassuring testimony from Federal Reserve Chairman Bernanke about the Fed’s commitment to QE (Quantitative Easing) served to prop up stock markets as the week progressed, but yields remained subdued.

Mortgage rates may also be easing a little as a result of slackening demand, itself the result of higher rates in February. Lesser demand for credit loosens up the mortgage pipeline to a degree, and lenders may price loans somewhat more aggressively in order to attract more business.

Mortgage rates still setting records’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) fell by five basis points (0.05 percent) to 3.80 percent, its lowest rate in a month.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbo) slid by a little less, shedding three basis points (0.03 percent) to drop back to 3.05 percent for the week.

FHA-backed 30-year FRMs split the difference of the above with a four basis point fall, easing to a still-fantastic rate of 3.39 percent. The overall average rate for 5/1 Hybrid ARMs fell by five hundredths of a percentage point, but that was enough to wander into record-low territory with an average of 2.67 percent.

Housing market remains active

Sales of new homes popped by 15.6 percent in January, climbing to the best levels seen since Summer 2008. The 437,000 annualized units sold drove inventory levels down to a scant 4.1 months at the present rate of sale; the Census bureau reported that there are 150,000 units built and ready for sale, the same number as seen in December, so stockpiles of unsold homes remains thin, regardless of the strength of sales. Given widespread economic benefits from the building and sale of new homes, that’s generally good news for the economy, since more will need to be built; however, the National Association of Home Builders did report a leveling in activity so there may not be as much of a boost from homebuilding in the next month or two.

Several ‘anchors’ keeping mortgage rates down

Slow economic growth tends to keep the lid on increases in interest rates, as does the Fed’s extraordinary monetary policy, and inflation yet remains a problem of tomorrow. Mix in a little global financial uncertainty and there appear to be plenty of anchors for interest rates in general and mortgage rates in specific, with few overt signs of the kind of economy which will support measurably higher rates. At least for the time being, that is.

Mortgage rates broke a notchy upward climb which began in December last week, but even with the decline, it’s unlikely we’ll be revisiting record lows anytime soon. This week’s got a fair cascade of new data, including the ISM’s service-business report, a Beige Book release, worker productivity and the all-important employment report. Mortgage rates hold level at best, but might increase a couple of basis points, too.

HSH Associates Financial News Blog

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