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August 1st, 2011

The stagnant economy keeps mortgage rates grounded



Housing Market Trending DownA host of economic issues kept mortgage rates at bay last week. These issues were: 

1. The battle to increase the nation’s debt limit.

2. The potential for downgrades for the United States AAA credit rating.

3. Localized worries about the impending changes to the conforming loan limits (which will limit access to low-price funding for some borrowers).

“While those are of course all troubling, each in their own way,” writes Keith Gumbinger in the latest Market Trends newsletter, “a larger concern might trump them all:

“The hard downshift and poor rebound in the economy which has left us barely skirting a double-dip recession.”

As we’ve noted several times before, a weak economy spells great deals for mortgage rates, which trended downward once again after Friday’s dismal GDP report.

According to the latest numbers from HSH.com:

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 increased by two basis points, moving to an average of 4.80 percent last week.

FHA-backed 30-year fixed-rate mortgages, especially important to first-time homebuyers and low-equity refinancers, saw a five-basis-point increase to close the week at 4.47 percent.

Given the wide differential in interest rates, at least some borrowers should be considering hybrid 5/1 ARMs. The five-year fixed-rate periods of these loans held steady last week at an average of just 3.36 percent. 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.

Mortgage rates aren’t expected to move all that much

While we still believe that a debt ceiling deal will get done, the hour grows late.

Other than that, there are a slew of first-week-of-the-month economic reports due this week, including the biggie, the Employment Report for July.

It would be a good time for an upside surprise or two to help lend some confidence, like a debt deal which balances some of the issues, or an employment report which beats forecasts, for example. Unlikely, but we can dream.

With a bit of volatility in the markets this week, we think we might end at about the same place as we finished last week, but there is admittedly not a lot of confidence in this forecast, especially given our country’s current economic state.

Looking for a rate forecast that’s a little further down the road? Be sure to check out our latest “Two-month forecast for mortgage rates.”

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

Our bloggers:

Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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