Mortgage rates still finding room to fall

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.

Mortgage Rate ConceptThe Federal Reserve held a meeting last week to review the state of the economy, provide some projections about future growth and inflation and to review the economic supports they are managing. At some point, these unconventional policy tools of purchasing Treasury debt and mortgage-backed securities alike will come to an end. At the moment, though, there is no end in sight.

While that is good news for mortgage shoppers–as is the renewed nervousness over Cyprus’ bank troubles–the Fed faces risks of killing the programs too soon as well as running them too long, with consequences for interest rates in both cases.

Mortgage rates fell 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 and jumbo) eased by five basis points (0.05 percent) to 3.83 percent, backing down from the 2013 high we reported last week.

The overall average rate for 15-year fixed-rate mortgages (conforming, non-conforming and jumbos) slid just three basis points (0.03 percent), falling to 3.05 percent for the week.

FHA-backed 30-year fixed-rate mortgages managed a decline of five basis points (0.05 percent), declining to an average rate of 3.40 percent, and the overall average rate for 5/1 Hybrid ARMs also fell by five hundredths of a percentage point, landing at an average 2.66 percent, a basis point above all-time lows.

Home sales, prices, starts rising

Sales of existing homes continued a general upward trend in February; purchases rose by 0.8 percent, climbing to an annualized rate of 4.98 million units. Despite the increase in sales, more inventory came into the market, and the supply of houses available relative to sales rose to 4.7 months.

That is still rather thin, since six months supply is thought to be normal or optimal. Home prices are rising, at least compared against year ago levels, with the 11.6 percent gain over the last 12 months the result of fewer sales of “distressed” homes. There is also arguably some pricing power afforded to sellers by the increase in demand fostered from still rock-bottom mortgage rates.

Housing starts did also rise by 0.8 percent for February, climbing to an annualized rate of 917,000. Single-family starts nudged about 3,000 units higher to 618,000 while multi-family added 4,000 units for the month. Permits for future activity also climbed, rising by 4.6 percent to 946,000, so it would appear that the future for construction and sales of new homes is brightening.

Rising rates remain tomorrow’s concern

While the potential of rising mortgage rates remains tomorrow’s problem, in the immediate future, we have some fresh data out this week in the form of the Chicago Fed’s National Activity Index, Sales of New Homes, a final update to GDP for the 4th quarter of 2013 and few other items of note. We should also have a new two-month forecast out. Mortgage rates moved off recent peaks last week, but seem likely to be flat this week.

HSH Associates Financial News Blog

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