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July 2nd, 2012

Mortgage rates have made 2012 a record-breaking year



Below is an excerpt from our latest Market Trends newsletter, available Friday night in your inbox:

Flipping CalenderThe first half of 2012 has come and gone, leaving in its wake a legacy of record low mortgage rates. Over the last six months, we did repeatedly see those, and expect to continue to see them occasionally as we roll though the summer, as noted in our latest Two-Month Forecast.

The still-slow economy, troubles in euro markets and Federal Reserve policies are all serving to keep mortgage and other interest rates low and stable. At the moment, there seems nothing on the immediate horizon which would change this to any great degree.

Mortgage rates remain steady

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 was unchanged, holding at a record low of 3.98 percent for a third consecutive week.

The FRMI’s 15-year companion was also unchanged [last] week, continuing to stand three basis points off record lows at 3.27 percent.

Important to homebuyers and low-equity-stake refinancers, already-low FHA-backed 30-year mortgages also held firm at 3.66 percent, while the overall average rate for 5/1 Hybrid ARMs finished at 2.89 percent, a decline of a just 0.01 percent.

Low mortgage rates are paying off

We are starting to see some of the benefits of durably low rates, though. New Home Sales rose by 7.6 percent in May, climbing to a 369,000 annualized rate of sale. While still well below boom-year peaks, and even what would be considered normal, they are also well above the absolute dismal bottoms we saw during the bust. Better still, perhaps, is that homes that are being built are being snapped up, so inventory levels remain quite lean, with just 145,000 units built and ready for sale, about a 4.7 month supply at the present rate of absorption. To meet demand, builders will need to keep building, which in turn is an important support for the economy.

More of the same

So the first half of 2012 has come and gone. We are still in a glass-half-full-at-best kind of economy, arguably no better or worse than when we started the year. Federal Reserve programs are still in play, financial markets are still in various forms of flux, unemployment is about the same, give or take a little, and there’s no easy or clear path ahead. We remain on a stumbling economic path and seem likely to remain here for some time to come yet.

However, every day that we escape the formation of a new or deeper downturn means a job which isn’t eliminated, even if few new ones aren’t forming with any speed. Each day that interest rates remain low presents an opportunity for a household to recast its balance sheet with a mortgage refinance, or for someone to get a chance to buy a home. Each decline in gasoline or natural gas prices frees up billions of spendable dollars which can be used to support the economy going forward. The situation at present couldn’t be characterized as great, not by any means, but it still beats the alternative.

Will mortgage rates fall?

Mortgage rates could move lower this week if the job numbers—due out Friday–miss the mark, but expectations are pretty low to start with, and the summer holiday season has begun, with its thinly populated and traded markets. We don’t think there will be much by way of change for rates, but a wander of a few basis points upward can’t be ruled out.

For an longer-range outlook for rates and the economy, one which will take you up until late August, have a look at our new Two-Month Forecast.

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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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