Mortgage rates back on the riseby Tim Manni
Mortgage rates moved higher last week, signaling that the period of continuously falling rates has, at least temporarily, come to an end.
Why did mortgage rates rise last week? There were several reasons:
1. Somewhat better economic news
2. A hopeful start to a resolution of the Greek debt mess
3. Growing concerns about our own debt-limit ceiling
4. The end of QE2
5. The mark of the second-half of the year (and a new quarter as well)
How much did mortgage rates rise last week? According to the latest figures from HSH.com, the bad news is that fixed, adjustable and FHA indicators moved upward; but the good news is that they didn’t rise all that much:
HSH.com’s broad-market mortgage tracker — our weekly Fixed-Rate Mortgage Indicator (FRMI) — found that the overall average rate for 30-year fixed-rate mortgages moved two basis points higher, moving to an average of 4.79 percent.
FHA-backed 30-year fixed-rate mortgages, especially important to first-time homebuyers and low-equity refinancers, also moved two basis points upward to close the week at 4.44 percent.
Given the wide differential in interest rates, at least some borrowers should be considering hybrid 5/1 ARMs; whose five-year fixed periods now averages just 3.40 percent, up three hundredths of a percentage point from the week prior. A borrower with a $300,000 loan willing to accept the risk of higher future payments would save about $20,000 over the next five years.
Stronger economy=higher rates
While we did see some economic bright spots and a more-hopeful expression by investors last week, that doesn’t mean the economy has a one-way ticket to a full recovery. There are still many roadblocks to a full recovery and no doubt more troubles ahead to overcome.
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Yet if the economic outlook does continue to improve, there is little likelihood that interest rates can continue on a downward path, and signs of improvement in the economic climate—even sporadic ones—will cause an upward pop in interest rates.
To sustain any increase in mortgage rates, we’ll need either a sustained increase in stronger economic news (especially job markets) or a renewed bout of inflation (which seems unlikely at the moment, particularly if oil holds below $100/bbl.). We’ll get a sense of any possible improvement this week when the employment report is released on Friday.
Mortgage rates rise some more?
Mortgage rates will be higher, perhaps 10-15 basis points higher, by the time mid-week rolls around. That would make them the highest rates since late May to early June. The result: fewer buyers and refinancers may find less-stellar rates than they might have just a short while back.
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