Mortgage rates rise, higher rates to come

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.

iStock_Sold SignAs goes investors’ perception of the economic climate, so go interest rates.

Although mortgage rates were relatively stable for the week (ending August 16) as a whole, upward pressure built all week long, and it’s a good bet that this upward pressure will be expressed in higher mortgage rates this week.

While there was an overall warmer tenor to the collective economic data which was revealed last week, it didn’t seem all that strong to us. However, we seem to be in one of those periods where poor news is rationalized away and good news is lent more credence than perhaps it deserves.

Rising mortgage rates ahead

Whatever the reason, mortgage rates are or shortly will be on the rise. The last few weeks all have featured little move in rates at all, but that seems likely to change:

  • The overall average for 30-year fixed mortgage rates (conforming, non-conforming and jumbos) rose by a single basis point (0.01 percent) to 4.59 percent.
  • The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) also eased by single basis point (0.01 percent), landing at 3.65 percent for the week.
  • Popular FHA-backed 30-year fixed-rate mortgages rose by three basis points, lifting back to 4.25 percent.
  • The overall 5/1 Hybrid ARM failed to move at all again, holding for a third week at 3.32 percent.

Positive news pushed mortgage rates higher

Outside the fact that the EuroZone recession technically came to an end in the second quarter of 2013 and another significant report showed that weekly claims for new unemployment benefits dropped to recovery lows, the rest of the economic news last week seemed more mix-and-match to us.

Despite items which should have tempered enthusiasm about the prospects for the economy, the focus remained squarely on the positive factors, those which would tend to confirm expectations of a Federal Reserve preparing to end QE in just a few short weeks time.

That in turn pushed underlying influential interest rates, such as the yield on the 10-year Treasury, back to two-year highs. Oddly, stock investors seem of the opinion that the stronger economy isn’t all that good of a thing, since they also by and large sold their holdings last week, too. One would think that, if the economy is strong enough as to warrant a Fed pullback–that if prospects are brightening–that there would be more value in holding stocks.

Expect higher mortgage rates this week

Even with the selloff last week in stocks and bonds, we could see more of the same this week, when key reports come in the form of the minutes from the Fed’s July 31 meeting, new and existing home sales, the weekly update on unemployment claims and a couple more items.

Mortgage rates will be moving back upward, probably by 10 basis points or so. We may even approach new 2013 records by the time this week is out.

HSH Associates Financial News Blog

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